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Sources of Asymmetric Shocks: The Exchange Rate or Other Culprits?
Skořepa, Michal ; Komárek, Luboš
We analyze and quantify the determinants of asymmetric shocks showing up in the form of medium-term real exchange rate (RER) changes. First, we discuss sources of asymmetric shocks causing exchange rate variability and the role of the RER as a shock generator. Second, we use data for 21 advanced and late-transition economies to gauge the extent to which medium-term bilateral real exchange rate variability can be explained by various fundamental factors. Using Bayesian model averaging, we find that out of 22 factors under consideration, four types of dissimilarities within a given pair of economies are likely to be included in the true model: dissimilarities as regards (i) financial development, (ii) per capita income growth, (iii) central bank independence, and (iv) the structure of the economy. A regression based on these four factors indicates that these factors explain about one third of the behavior of the three-year RER variability for the whole sample and almost half of the behavior of the three-year RER variability for the RERs involving specifically the euro. The remaining part of the total variability represents an estimate of the influence of the exchange rate market itself (together with the influence of fundamental price level or nominal exchange rate determinants not captured by the regressors used).
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Economic Research Bulletin (2013, No.2). No. 2, Vol. 11, November 2013, Macroeconomic Effects of Fiscal Policy
Česká národní banka
This edition of the Research Bulletin focuses on four articles which analyse the macroeconomic effects of fiscal policy. The first article examines the interactions between monetary and fiscal policies in six industrialised countries during 1980–2008. Employing a novel empirical framework, the article documents changes in monetary-fiscal interactions over time. Next, these changes are linked to the monetary policy regime set-up. The second article assesses the extent to which fiscal discretion in the Czech Republic contributed to smoothing the real economy over the business cycle in the past decade. Using several alternative approaches, the results suggest that fiscal discretionary measures have been procyclical, that is, have amplified business cycle fluctuations. The third article analyses in an empirical framework how unexpected changes to government spending and revenues affect the Czech economy. The article detects certain regularities and at the same time shows the limits of the existing identification methods when applied to short Czech fiscal data. The fourth article takes a complementary approach by building a dynamic stochastic general equilib rium (DSGE) model to quantify the effects of fiscal measures on the expenditure and revenue sides of the Czech economy. The model, which is still rather in the development stage, demonstrates the potential for calculating fiscal multipliers and simulating the macroeconomic effects of fiscal measures for individual categories of the government budget.
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The Effect of Non-Linearity Between Credit Conditions and Economic Activity on Density Forecasts
Franta, Michal
This paper examines the effect of non-linearities on density forecasting. It focuses on the relationship between credit markets and the rest of the economy. The possible non-linearity of this relationship is captured by a threshold vector autoregressive model estimated on the US data using Bayesian methods. Density forecasts thus account for the uncertainty in all model parameters and possible future regime changes. It is shown that considering nonlinearity can improve the probabilistic assessment of the economic outlook. Moreover, three illustrative examples are discussed to shed some light on the possible practical applicability of density forecasts derived from non-linear models.
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Structural Reforms and Economic Growth: A Meta-Analysis
Babecký, Jan ; Havránek, Tomáš
This paper evaluates the impact of structural reforms, mainly liberalization and privatiza- tion, on economic growth. To provide stylized facts on how such reforms worked in the past, we quantitatively review 60 studies that estimate the relation between reforms and growth empirically. These studies examine structural reforms carried out in 26 transition and post-transition countries around the world. Our results show that a typical reform caused costs in the short run, but had strong positive effects on long-run growth. Reforms focused on external liberalization proved to be more beneficial than other types of reform in both the short and long run. The findings hold even after correction for publication bias and misspecifications present in some primary studies
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Macroeconomic Effects of Fiscal Policy in the Czech Republic: Evidence Based on Various Identification Approaches in a VAR Framework
Franta, Michal
The paper analyzes the macroeconomic effects of fiscal policy shocks in the Czech Republic. The low number of observations available for fiscal variables significantly affects the setup of the analysis. Firstly, a small-scale VAR is considered. Secondly, the model is estimated using Bayesian techniques. Finally, all identification approaches that are currently employed by the literature and that are applicable to the Czech Republic are used. The estimation results suggest that the fiscal policy transmission mechanism in the Czech Republic exhibits some standard features (e.g., a rise in GDP and inflation after unexpected government spending, and an increase in government spending after a positive shock to government revenues). However, the uncertainty associated with the results is substantial. Furthermore, it is discussed how the identification strategy itself may represent an additional source of uncertainty of the results. JEL
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