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Macroprudential Policy and Its Instruments in a Small EU Economy
Frait, Jan ; Komárková, Zlatuše
This paper focuses on the way the macroprudential policy framework in a small EU economy should be designed. With reference to the experience of the Czech Republic’s financial system and the Czech National Bank it provides definitions of financial stability and macroprudential policy as well as of their objectives. It then explains how systemic risk evolves over the financial cycle and outlines approaches to preventing systemic risk in the accumulation stage of the cycle and subsequently mitigating the materialisation of such risk if prevention fails. The paper argues that for the establishment of a macroprudential policy framework in a bank-based economy with a relatively simple and small financial sector, the phenomenon of procyclical behaviour has to stand centrally. Correspondingly, a macroprudential authority in such an economy has to look primarily at cyclically induced sources of systemic risks. Nevertheless, structural sources of systemic risks and associated instruments are discussed as well. The arguments for the recommended arrangements are supported by empirical investigations into the extent of procyclicality in European banks’ lending behaviour and the contribution of the regulatory and accounting framework to it. JEL
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Models for Stress Testing in the Insurance Sector
Komárková, Zlatuše ; Gronychová, Marcela
The project is focused on top-down stress testing of the Czech insurance sector. The aim of the present paper is to describe the advanced method for macro stress testing of insurance companies used by the CNB. We apply the presented stress test to eleven Czech insurance companies. The shocks applied are designed to replicate a macroeconomic scenario and to impact on both the asset and liability sides of the balance sheet. We consider both investment and insurance risks relating to the Czech insurance sector. An application of the simulated scenario to the Czech insurance sector illustrates that the sector is sufficiently resilient and stable.
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Fiscal Discretion in the Czech Republic in 2001–2011: Has It Been Stabilizing?
Ambriško,Róbert ; Augusta, Vítězslav ; Hájková, Dana ; Král, Petr ; Netušilová, Pavla ; Říkovský, Milan ; Soukup, Pavel
We survey discretionary measures of Czech fiscal policy in the period 2001–2011 and analyze their episodes and macroeconomic impacts. We use bottom-up and top-down methods to identify fiscal discretion and we compare the results with Kalman filtering. Fiscal discretion is found to be used frequently and to be large in several years. At the same time, the results signal that macroeconomic stabilisation has not been major aim of fiscal discretion measures. For example, in the years of economic recession 2010–2011, the government put emphasis on pro-cyclical consolidation.
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Ten years of EMU: Convergence, divergence and new policy priorities
Christodoulakis, Nicos
Has the single currency promoted or hindered convergence among the countries of the Eurozone? On the one hand, asymmetric shocks have subsided after the creation of the single currency and FDI has been substantially promoted both inside and outside the EMU as a result of reduced exchange rate volatility, more integration and better institutional functioning. On the other hand, an examination of the catching-up process between the less and more affluent countries of the Eurozone suggests that convergence has been fading since the EMU was initiated in 1999. Another worrying development in the Eurozone is the emergence of unprecedented CA deficits in the southern Eurozone countries, while the northern Eurozone group enjoys substantial surpluses. Although both groups of countries have attracted increased FDI flows after EMU, there seems to be a sharp differentiation regarding size and composition. In the southern countries, the housing sector has attracted relatively more investment than the production sector, while the reverse seems to be the case in the northern group. Thus, investment in the northern (southern) Eurozone countries has increased traded (non-traded) output and caused an improvement (deterioration) in the trade balance. To face such imbalances, new policy priorities are required in the Eurozone that put more emphasis on convergence and competitiveness.
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Inflation targeting and the role of real objectives
Walsh, Carl E.
In this paper, writer focuses on two aspects of central banking – flexibility and transparency – that have been affected by monetary policy debates over the past twenty years. Because criticism of inflation targeting, at least in the United States, often focuses on the claim that an inflation targeting central bank may ignore real economic fluctuations, he directes my comments to the role real objectives play in the design of optimal monetary policy.
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Private finance and public policy
Schinasi, Garry J.
This paper articulates a logical foundation—drawn from disparate literatures—for understanding why safeguarding financial stability is an important economic policy objective. The paper also explains why private aspects of finance provide broader social economic benefits and have the characteristics of public goods. Unique aspects of finance are examined, as are the linkages between finance, money, and the real economy.
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The EU budget dispute - A blessing in disguise?
Schneider, Ondřej
This paper analyses the European budget and the net position of the ten new member states. Writer argues that the EU budget should be reconsidered, as the Union has expanded to 25 member states and has become more heterogeneous. Writer demonstrates how the ten new members fared with respect to the budgetary plans outlined in the budget proposal approved at the 2002 summit at Copenhagen.
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