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Financial Stress in the Czech Republic: Measurement and Effects on the Real Economy

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  • Ján Malega
  • Roman Horváth

Abstract

We estimate a financial stress index for the Czech Republic and examine its development during the 2002-2014 period. We find a marked increase in financial stress at the beginning of the global financial crisis with a decrease to nearly pre-crisis levels by the end of our study period. Next, we estimate vector autoregression models of the Czech economy and find that financial stress has systematic effects on output, prices and interest rates, with the maximum response occurring approximately one and a half years after the shock. Specifically, an increase in financial stress is associated with higher unemployment, lower prices and lower interest rates, indicating its detrimental effects on the real economy.

Suggested Citation

  • Ján Malega & Roman Horváth, 2017. "Financial Stress in the Czech Republic: Measurement and Effects on the Real Economy," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(3), pages 257-268.
    • Handle: RePEc:prg:jnlpep:v:2017:y:2017:i:3:id:608:p:257-268
    DOI: 10.18267/j.pep.608
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    3. Kaelo Ntwaepelo & Grivas Chiyaba, 2022. "Financial Stability Surveillance Tools: Evaluating the Performance of Stress Indices," Economics Discussion Papers em-dp2022-06, Department of Economics, University of Reading.

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    More about this item

    Keywords

    financial stress indicator; vector autoregression; Czech Republic;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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