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Monetary transmission and the financial sector in the Czech Republic

Author Info

  • Tomáš Havránek
  • Roman Horváth

    ()

  • Jakub Matějů

Abstract

In this paper, we (1) examine the interactions of financial variables and the macroeconomy within the block-restriction vector autoregression model and (2) evaluate to what extent the financial variables improve the forecasts of GDP growth and inflation. For this reason, various financial variables are examined, including those unexplored in previous literature, such as the share of liquid assets in the banking industry and the loan loss provision rate. Our results suggest that financial variables have a systematic and statistically significant effect on macroeconomic fluctuations. In terms of forecast evaluation, financial variables in general seem to improve the forecast of macroeconomic variables, but the predictive performance of individual financial variables varies over time, even though it strengthens during the 2008–2009 crisis. The results give some support for the risk-taking channel of monetary policy, as the level of the monetary policy rate is positively associated with the loan loss provision rate of commercial banks. Finally, a more stable financial system is found to contribute to faster economic growth. Copyright Springer Science+Business Media, LLC. 2012

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File URL: http://hdl.handle.net/10.1007/s10644-011-9106-z
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Article provided by Springer in its journal Economic Change and Restructuring.

Volume (Year): 45 (2012)
Issue (Month): 3 (August)
Pages: 135-155

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Handle: RePEc:kap:ecopln:v:45:y:2012:i:3:p:135-155
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=113294

Keywords: Macroeconomic and financial linkages; Vector autoregressions; Forecasting; E44; E58; E47; G17;

Find related papers by JEL classification:

  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
  • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
  • 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

References listed on IDEAS
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  1. Magdalena Morgese Borys & Roman Horváth, 2007. "The Effects of Monetary Policy in the Czech Republic: An Empirical Study," Working Papers IES 2007/26, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2007.
  2. Jacobson, Tor & Linde, Jesper & Roszbach, Kasper, 2005. "Exploring interactions between real activity and the financial stance," Journal of Financial Stability, Elsevier, vol. 1(3), pages 308-341, April.
  3. Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2000. "How stable is the predictive power of the yield curve? evidence from Germany and the United States," Staff Reports 113, Federal Reserve Bank of New York.
  4. Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 2003. "Do financial variables help forecasting inflation and real activity in the euro area?," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1243-1255, September.
  5. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
  6. Eric Parrado, 2001. "Effects of Foreign and Domestic Monetary Policy in a Small Open Economy: the Case of Chile," Working Papers Central Bank of Chile 108, Central Bank of Chile.
  7. James H. Stock & Mark W. Watson, 2001. "Forecasting Output and Inflation: The Role of Asset Prices," NBER Working Papers 8180, National Bureau of Economic Research, Inc.
  8. Kenneth D. West & Todd Clark, 2006. "Approximately Normal Tests for Equal Predictive Accuracy in Nested Models," NBER Technical Working Papers 0326, National Bureau of Economic Research, Inc.
  9. Mojon, Benoît & Peersman, Gert, 2001. "A VAR description of the effects of monetary policy in the individual countries of the euro area," Working Paper Series 0092, European Central Bank.
  10. Ivan Baboucek & Martin Jancar, 2005. "Effects of Macroeconomic Shocks to the Quality of the Aggregate Loan Portfolio," Working Papers 2005/01, Czech National Bank, Research Department.
  11. Elbourne, Adam & de Haan, Jakob, 2006. "Financial structure and monetary policy transmission in transition countries," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 1-23, March.
  12. Marcella Lucchetta, 2007. "What Do Data Say About Monetary Policy, Bank Liquidity and Bank Risk Taking?," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 36(2), pages 189-203, 07.
  13. Tomáš Holub, 2008. "Causes of Deviations from the CNB’s Inflation Targets: An Empirical Analysis," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(09-10), pages 425-433, December.
  14. Zha, Tao, 1999. "Block recursion and structural vector autoregressions," Journal of Econometrics, Elsevier, vol. 90(2), pages 291-316, June.
  15. Vít Bárta & Miroslav Singer, 2006. "The banking sector after 15 years of restructuring: Czech experience and lessons," BIS Papers chapters, in: Bank for International Settlements (ed.), The banking system in emerging economies: how much progress has been made?, volume 28, pages 203-12 Bank for International Settlements.
  16. Goodhart, Charles & Hofmann, Boris, 2000. "Do Asset Prices Help to Predict Consumer Price Inflation?," Manchester School, University of Manchester, vol. 68(0), pages 122-40, Supplemen.
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Cited by:

  1. Robert Ambrisko & Vitezslav Augusta & Jan Babecky & Michal Franta & Dana Hajkova & Petr Kral & Jan Libich & Pavla Netusilova & Milan Rikovsky & Jakub Rysanek & Pavel Soukup & Petr Stehlik & Vilem Vale, 2013. "Macroeconomic Effects of Fiscal Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 11, number rb11/2 edited by Jan Babecky & Kamil Galuscak.
  2. Michal Franta & Roman Horvath & Marek Rusnak, 2011. "Evaluating Changes in the Monetary Transmission Mechanism in the Czech Republic," Working Papers 2011/13, Czech National Bank, Research Department.
  3. Oxana Babecka Kucharcukova & Alexis Derviz & Vaclav Hausenblas & Michal Hlavacek & Mark Joy & Narcisa Kadlcakova & Lubos Komarek & Zlatuse Komarkova & Tomas Konecny & Ivana Kubicova & Jitka Lesanovska, 2014. "Macroprudential Research: Selected Issues," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 12, number rb12/2 edited by Jan Babecky & Borek Vasicek.
  4. Roman Horvath & Dragan Petrovski, 2012. "International Stock Market Integration: Central and South Eastern Europe Compared," William Davidson Institute Working Papers Series wp1028, William Davidson Institute at the University of Michigan.
  5. Jose Peydro Alcalde & Sona Benecka & Alexis Derviz & Adam Gersl & Tomas Holub & Roman Horvath & Petr Jakubik & Narcisa Liliana Kadlcakova & Dorota Kowalczyk & Ivana Kubicova & Steven Ongena & Jakub Ry, 2012. "Financial Stability and Monetary Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 10, number rb10/2 edited by Jan Babecky & Roman Horvath.
  6. Jaromir Baxa & Jiri Bohm & Roman Horvath & Lubos Komarek & Petr Kral & Magdalena Morgese Borys & Filip Rozsypal & Branislav Saxa & Borek Vasicek, 2011. "Monetary Policy Analysis in a Central Bank," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 9, number rb09/1 edited by Jan Babecky & Roman Horvath.
  7. Kamil Galuscak & Adam Gersl & Marcela Gronychova & Petr Hlavac & Petr Jakubik & Lubos Komarek & Zlatuse Komarkova & Tomas Konecny & Jakub Seidler, 2014. "Stress-Testing Analyses of the Czech Financial System," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 12, number rb12/1 edited by Jan Babecky & Roman Horvath.
  8. Katerina Arnostova & Jozef Barunik & Jan Filacek & Michal Franta & David Havrlant & Roman Horvath & Filip Novotny & Marie Rakova & Lubos Ruzicka & Branislav Saxa & Katerina Smidkova & Peter Toth, 2012. "Macroeconomic Forecasting: Methods, Accuracy and Coordination," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 10, number rb10/1 edited by Jan Babecky.

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