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How Can the Czech National Bank Eliminate the Zero Lower Bound on Interest Rates? A Case Study
Katinová, Alexandra ; Havránek, Tomáš (advisor) ; Kolcunová, Dominika (referee)
The thesis provides case study research on the feasibility of the negative in- terest rate policy in the context of the Czech Republic. No major obstacles opposing the policy itself were found in the bases of the Czech legal system, however, a list of acts explicitly affected by the value of policy rates needs to be adjusted to prevent misinterpretations. Moreover, it was identified that tax prepayments held by the Tax Authority and free reserves kept at the Czech National Bank at zero interest rate create room for escaping from the policy. Additionally, debt repayments in cash and interest-free accounts of government and public institutions administrated by the Czech National Bank could lead to undesirable advantages. A complementary VAR model analysis of the interest rate transmission under negative policy rates was performed to evaluate quan- titatively the experience from European countries, however, short data series available provided merely indicative results.
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The effect of higher capital requirements on bank lending: the capital surplus matters
Kolcunová, Dominika ; Malovaná, Simona
This paper studies the impact of higher additional capital requirements on growth in loans to the private sector for banks in the Czech Republic. The empirical results indicate that higher additional capital requirements have a negative effect on loan growth for banks with relatively low capital surpluses. In addition, the results confirm that the relationship between the capital surplus and loan growth is also important at times of stable capital requirements, i.e. it does not serve only as an intermediate channel of higher additional capital requirements.
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Estimating the effective lower bound for the Czech National Bank’s policy rate
Kolcunová, Dominika ; Havránek, Tomáš
This paper focuses on the estimation of the effective lower bound on the Czech National Bank’s policy rate. The effective lower bound is determined by the value below which holding and using cash would be preferable to holding deposits with negative yields. This bound is approximated on the basis of the storage, insurance and transport costs of cash and the loss of convenience associated with cashless payments. This estimate is complemented by a calculation based on interest charges reflecting the impact of negative rates on banks’ profitability. Overall, we get a mean of slightly below –1%, approximately in the interval (–2.0%, –0.4%). In addition, by means of a vector autoregression we show that the potential of negative rates is not sufficient to deliver monetary policy easing similar in its effects to the impact of the Czech National Bank’s exchange rate commitment during the years 2013–2017.
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Are the risk weights of banks in the Czech Republic procyclical?: evidence from wavelet analysis
Brož, Václav ; Pfeifer, Lukáš ; Kolcunová, Dominika
We analyze the cyclicality of risk weights of banks in the Czech Republic from 2008 to 2016. We differentiate between risk weights under the internal ratings-based and those under the standardized approach, consider both the business cycle and the financial cycle, and employ wavelet coherence as a means of dynamic correlation analysis. Our results indicate that the risk weights of exposures under the internal ratings-based approach, including risk weights related to exposures secured by real estate collateral, are procyclical with respect to the financial cycle. We also show that the effect of changing asset quality on risk weights is present for the internal ratings-based approach, in line with our expectations based on regulatory standards. Our results can be employed for the purposes of decision-making on the activation of supervisory and macroprudential instruments, including the countercyclical capital buffer.
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Does monetary policy influence banks’ perception of risks?
Malovaná, Simona ; Kolcunová, Dominika ; Brož, Václav
This paper studies the extent to which monetary policy may affect banks’ perception of credit risk and the way banks measure risk under the internal ratings-based approach. Specifically, we analyze the effect of different monetary policy indicators on banks’ risk weights for credit risk. We present robust evidence of the existence of the risk-taking channel in the Czech Republic. Further, we show that the recent prolonged period of accommodative monetary policy has been instrumental in establishing this relationship. Finally, we obtain comparable results by extending the analysis to cover all the Visegrad Four countries. The presented findings have important implications for the prudential authority, which should be aware of the possible side-effects of monetary policy on how banks measure risk.
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Impact of Terrorism on Economic Growth
Siegl, Jakub ; Červinka, Michal (advisor) ; Kolcunová, Dominika (referee)
The negative market atmosphere resulting from terrorism may potentially affect key macroeconomic variables and be reflected in economic growth both immediately and with time lags. This thesis utilizes quarterly data on variables related to terrorism and key macroeconomic metrics for the time period 1970-2017 and establishes the effect of terrorism on economic growth. Furthermore, it elaborates on the change of general perception of terrorism after the 9/11 2001 attack and assesses the difference of its effect before and after this key violent act. In general, it has been found that the deaths and wounds resulting from terrorism affect economic growth with lags. Further- more, following the 9/11 2001 terrorist attack, the time layout of the effect of deaths resulting from terrorism has changed. Keywords terrorism, economic growth, panel data analysis, fixed effects model, mac- roeconomic metrics
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How Can the Czech National Bank Eliminate the Zero Lower Bound on Interest Rates? A Case Study
Katinová, Alexandra ; Havránek, Tomáš (advisor) ; Kolcunová, Dominika (referee)
The thesis provides case study research on the feasibility of the negative in- terest rate policy in the context of the Czech Republic. No major obstacles opposing the policy itself were found in the bases of the Czech legal system, however, a list of acts explicitly affected by the value of policy rates needs to be adjusted to prevent misinterpretations. Moreover, it was identified that tax prepayments held by the Tax Authority and free reserves kept at the Czech National Bank at zero interest rate create room for escaping from the policy. Additionally, debt repayments in cash and interest-free accounts of government and public institutions administrated by the Czech National Bank could lead to undesirable advantages. A complementary VAR model analysis of the interest rate transmission under negative policy rates was performed to evaluate quan- titatively the experience from European countries, however, short data series available provided merely indicative results.
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Estimating the Effective Lower Bound for the Czech National Bank's Policy Rate
Kolcunová, Dominika ; Havránek, Tomáš (advisor) ; Dědek, Oldřich (referee)
The thesis focuses on the estimation of the effective lower bound for the Czech National Bank's policy rate. It is the first attempt of this kind in the Czech context and also one of few in the international scale. The effective lower bound is determined by the value below which holding and using cash would be more favourable than depositing money in a bank account with a negative rate. This bound may be approximated based on costs of storage, insurance and transportation of cash and also based on the loss of convenience associated with cashless payments. We estimate that costs of the former lie in the interval from 0.2% to 0.6%. The latter, costs of loss of convenience, are relatively high in the Czech market as they attain around 1%. The estimate based on interest charges which present a direct cost and decrease in the bank profitability asserts slightly lower values, in particular with respect to a high share of deposits and repo operations at the CNB. Altogether we get a value below -1%, in the interval (-1.5%, -1.0%), under shorter term duration possibly lower, in the interval (-2.0%, -1.0%). The second part of the thesis offers modelling of transmission of interest rates. The results state that under the assumption of the average transmission over the past years it would be necessary to decrease...
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Regional disparities in price levels across the European Union
Kolcunová, Dominika ; Janský, Petr (advisor) ; Křehlík, Tomáš (referee)
Undisputedly, including price levels should be an integral part of any regional analysis. Currently, at the country level, purchasing power parities (or, in the case of the European Union, purchasing power standards) are used. However, these measures account only for one national parity in each country and do not reflect inter-regional price differentials. Consequently, this approach distorts the information value of the indicators (regional GDP per capita, disposable income per capita, et cetera) since the majority of countries are definitely not homogenous from the perspective of prices. Therefore, the aim of this thesis is to estimate regional price levels across the EU regions using an econometric model, which is based on available data on regional price levels for six countries in Europe. After estimating a regression equation and checking for the predictive power, regional price levels for the rest of EU regions at NUTS 2 level are estimated for the first time. Subsequently, they are used for recalculation of socio-economic indicators. The results imply that significant differences between analyses with one national price level and actual regional levels exist. This raises also several issues for policy implications (for instance potential sub-optimality of the European Cohesion policy, which...
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