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Evaluating the Links Between the Financial and Real Sectors in a Small Open Economy: The Case of the Czech Republic
Konečný, Tomáš ; Babecká Kucharčuková, Oxana
In this paper we use a battery of various mixed-frequency data models to forecast Czech GDP. The models employed are mixed-frequency vector autoregressions, mixed-data sampling models, and the dynamic factor model. Using a dataset of historical vintages of unrevised macroeconomic and financial data, we evaluate the performance of these models over the 2005–2012 period and compare them with the Czech National Bank’s macroeconomic forecasts. The results suggest that for shorter forecasting horizons the accuracy of the dynamic factor model is comparable to the CNB forecasts. At longer horizons, mixed-frequency vector autoregressions are able to perform similarly or slightly better than the CNB forecasts. Furthermore, moving away from point forecasts, we also explore the potential of density forecasts from Bayesian mixed-frequency vector autoregressions.
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Expected Regime Change: Transition Toward Nominal Exchange Rate Stability
Brázdik, František
This work presents an extension of a small open economy DSGE model allowing the transition toward a monetary policy regime aimed at exchange rate stability to be described. The model is estimated using the Bayesian technique to fit the properties of the Czech economy. In the scenarios assessed, the monetary authority announces and changes its policy so that it is focused solely on stabilizing the nominal exchange rate after a specific transition period is over. Four representative forms of monetary policy are followed to evaluate their properties over the announced transition period. Welfare loss functions assessing macroeconomic stability are defined, allowing the implications of the transition period regime choice for macroeconomic stability to be assessed. As these experiments show, exchange rate stabilization over the transition period does not deliver the lowest welfare loss. Under the assumptions taken, the strict inflation-targeting regime is identified as the best-performing regime for short transition periods. However, it can be concluded that for longer transition periods the monetary policy regime should respond to changes in the exchange rate.
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Benefits and costs of common European currency adoption in small open economy (on the example of chosen country)
Bábek, Jiří ; Durčáková, Jaroslava (advisor) ; Doležal, Jiří (referee)
The aim of this thesis is to analyze and assess the benefits and cosi resulting from the implementation of common currency in a small open economy in specific cases in chosen countries. The theoretical part is devoted to the monetary integration itself, its historical development in Europe anf the theory of optimum currency area. Attention will be focused also on the entry criteria of monetary union and the specifics of small open economies within the frame of monetary union. The analytical part evaluates and compares the readiness of chosen economies. Subsequently, the thesis deals with benefits and costs of monetary integration and their significance in a particular situation on the example of chosen countries. Individual benefits and costs will also be put into context with the crisis of monetary union. The results are discussed in conclusion.
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