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Changes in Inflation Dynamics under Inflation Targeting? Evidence from Central European Countries
Baxa, Jaromír ; Plašil, M. ; Vašíček, B.
The purpose of this paper is to provide a novel look at the evolution of inflation dynamics in selected Central European (CE) countries. We use the lens of the New Keynesian Phillips Curve (NKPC) nested within a time-varying framework. Exploiting a time-varying regression model with stochastic volatility estimated using Bayesian techniques, we analyze both the closed and open-economy version of the NKPC. The results point to significant differences between the inflation processes in three CE countries. While inflation persistence has almost disappeared in the Czech Republic, it remains rather high in Hungary and Poland. In addition, the volatility of inflation shocks decreased quickly a few years after the adoption of inflation targeting in the Czech Republic and Poland, whereas it remains quite stable in Hungary even after ten years’ experience of inflation targeting. Our results thus suggest that the degree of anchoring of inflation expectations varies across CE coutries.
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What the Data Say about the Effects of Fiscal Policy in the Czech Republic?
Baxa, Jaromír
In this paper, we provide the estimates of the fiscal multiplier in the Czech economy, based on the methodology of the fiscal VAR. The basic idea, adding fiscal variables into the macroeconomic VAR model, follows Blanchard and Perotti (2002). For estimation of our model, we utilize the dataset with quarterly data on a sample from the first quarter of 1998 to the second quarter of 2009. Our main results are as follows. Firstly, government expenditures have a positive and significant impact on the GDP. By contrast, a response of GDP on a shock to government revenues is slightly negative and in most specifications not significant. Secondly, these results are robust to various sensitivity checks. Consequently, the restoration of sustainable fiscal policy should focus rather on the revenues side than in the government expenditures, since a significant cut in government spending would probably have slowed down economic growth. Finally, we should note, that uncertainty connected with our results is large, namely in comparison with existing studies on the effects of monetary policy.
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Fiscal developments and financial stress: a threshold VAR analysis
Baxa, Jaromír ; Afonso, Antonio ; Slavík, M.
We use a threshold VAR analysis to study whether the effects of fiscal policy on economic activity differ depending on financial market conditions. In particular, we investigate the possibility of a non-linear propagation of fiscal developments according to different financial market stress regimes. More specifically we employ a quarterly dataset, for the U.S., the U.K., Germany and Italy, for the period 1980:4-2009:4, encompassing macro, fiscal and financial variables. The results show that (i) the use of a nonlinear framework with regime switches is corroborated by nonlinearity tests; (ii) the responses of economic growth to a fiscal shock are mostly positive in both financial stress regimes; (iii) financial stress has a negative effect on output growth and worsens the fiscal position; (iv) the nonlinearity in the response of output growth to a fiscal shock is mainly associated with different behaviour across regimes; (v) the size of the fiscal multipliers is higher than average in the last crisis.
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What the Data Say about the Effects of Fiscal Policy in the Czech Republic?
Baxa, Jaromír
In this paper, we provide the estimates of the fiscal multiplier in the Czech economy, based on the methodology of the fiscal VAR. The basic idea, adding fiscal variables into the macroeconomic VAR model, follows Blanchard and Perotti (2002). For estimation of our model, we utilize the dataset with quarterly data on a sample from the first quarter of 1998 to the second quarter of 2009. Our main results are as follows. Firstly, government expenditures have a positive and significant impact on the GDP. By contrast, a response of GDP on a shock to government revenues is slightly negative and in most specifications not significant. Secondly, these results are robust to various sensitivity checks. Consequently, the restoration of sustainable fiscal policy should focus rather on the revenues side than in the government expenditures, since a significant cut in government spending would probably have slowed down economic growth.
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How Does Monetary Policy Change? Evidence on Inflation Targeting Countries
Baxa, Jaromír ; Horváth, R. ; Vašíček, B.
We examine the evolution of monetary policy rules in a group of inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom), applying a moment-based estimator in a time-varying parameter model with endogenous regressors. Using this novel flexible framework, our main findings are threefold. First, monetary policy rules change gradually, pointing to the importance of applying a time-varying estimation framework. Second, the interest rate smoothing parameter is much lower than typically reported by previous time-invariant estimates of policy rules. External factors matter for all countries, although the importance of the exchange rate diminishes after the adoption of inflation targeting. Third, the response of interest rates to inflation is particularly strong during periods when central bankers want to break a record of high inflation, such as in the UK or Australia at the beginning of the 1980s.
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Kooperace a ekonomický růst
Baxa, Jaromír
In this paper, we investigate the relative importance of cooperative behavior and environment for economic growth in simulated economies. We consider a simple world populated by individuals who can either utilize resources from their environment
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