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The Czech exchange rate floor: Depreciation without inflation?
Baxa, Jaromír ; Šestořád, Tomáš
After the introduction of an exchange rate commitment and an immediate 7% depreciation of the Czech koruna of in 2013, output growth resumed but inflation remained low. Consequently, the Czech National Bank did not return policy to normal for more than three years. Using a time-varying parameter VAR model with stochastic volatility, we show that this was not surprising. The exchange rate pass-through to prices had been rather low and gradually decreasing since the early 2000s, suggesting limited potential effects of the exchange rate commitment on inflation. On the other hand, the pass-through to output growth increased. These results hold even when the period of the exchange rate floor and the zero lower bound is excluded from the sample, and they are robust to other sensitivity checks. Our results are consistent either with a flattened Phillips curve, or rising quality of the Czech exports and participation in global value chains, or a small effect of the exchange rate commitment on inflation expectations when not paired with temporary price-level targeting. Moreover, we highlight the usefulness of models accounting for time variation of parameters for policy analysis.
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The Exchange Rate Pass-Through at the Zero Lower Bound: The Evidence from the Czech Republic
Šestořád, Tomáš ; Baxa, Jaromír (advisor) ; Novák, Jiří (referee)
The paper examines the hypothesis that the devaluation of the domestic currency leads to the higher exchange rate pass-through at the zero lower bound since the interest rate channel cannot offset effects of the depreciation in that situation. Time-varying vector autoregression with stochastic volatility is used to identify the development of the pass-through. The hypothesis is tested on the Czech dataset because the Czech Republic is considered as the prototypical small open economy with inflation targeting. The assumption of higher pass-through to consumer prices at the zero lower bound is rejected. Obtained results confirm that the deprecation stimulates output growth slightly more when the interest rate is close to zero. Our estimations imply that the exchange rate commitment of the Czech National Bank increased the price level by 0.116 % and contributed to the output growth by 0.781 %.
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Exchange Rate Pass-Through in Mongolia
Batmunkh, Sanjidmaa ; Holub, Tomáš (advisor) ; Kocourek, David (referee)
This thesis investigates the exchange rate pass-through to consumer prices, and its non-linearity and asymmetry effect in Mongolia. The recursive VAR model and non-linear econometric model are applied using monthly data from January 2000 to December 2013. We find that exchange rate pass-through is high and incomplete both in the short and in the long run in Mongolia. There is a statistically significant asymmetry effect, which states that impact of exchange rate depreciation on consumer price is higher than appreciation. However, we do not find an evidence of non-linearity in consumer price reaction to the large and small absolute changes of the exchange rate relative to its sample average and median as a threshold level. Additionally, we estimate the importance of the exchange rate shock for the consumer price variation using variance decomposition technique. In spite of this relatively high pass through, the exchange rate shocks explain a relatively small percentage of the variation in CPI inflation. Powered by TCPDF (www.tcpdf.org)
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The Exchange Rate Pass-Through in Central and Eastern Europe
Mirková, Barbora ; Horváth, Roman (advisor) ; Jašová, Martina (referee)
This thesis examines the exchange rate pass-through into consumer prices in Central and Eastern Europe. The study is based on quarterly data of 12 countries from 2003 to 2013. Estimations are conducted using heterogeneous panel cointegration methods, namely the mean group and the pooled mean group estimators. Fixed effects are used as a reference. The thesis provides short- run and long-run estimates of the exchange rate pass-through for the individual countries and for the region as a whole. Based on the results, we conclude that the exchange rate pass-through is highly variable across Central and Eastern Europe. We find that there is no clear distinction between the pass-through rates in euro area countries, EU countries not using the euro and non- EU countries. Further, we find that the generally accepted concept of higher exchange rate pass- though in developing countries does not hold in this region. JEL Classification C23, E31, E52, F31 Keywords exchange rate pass-through, pooled mean group, mean group, heterogeneous panel cointegration Author's e-mail bara.mirkova@centrum.cz Supervisor's e-mail roman.horvath@gmail.com
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Exchange Rate Pass - Through to Domestic Prices: The Case of the Czech Republic
Hájek, Jan ; Horváth, Roman (advisor) ; Benčík, Daniel (referee)
In this thesis, we examine the exchange rate pass-through phenomenon in the Czech Re- public over 1998:1-2014:1 period. As our vector autoregression results indicate, short-term pass-through effect slowed down and prolongated its duration substantially. Consequently, the accumulated value to be transmitted increased compared to previous findings. In the case of exchange rate pass-through effect to CPI, the accumulated response after 18 months accounts for about 40-60 per cent. In this regard, our time-varying results using unique Chebyshev Time Polynomials points to period 2008-2014 to be the leading cause. It seems that during macroeconomically less stable periods the exchange rate pass-through in the Czech Republic tends to increase. Even though the consensus on the pass-through lev- els and its development over time is rather scarce, we find support for our conclusions. More interestingly, having in mind November's currency interventions of the Czech Na- tional Bank to weaken koruna (and thus avoiding deflation), our results reveal that this measure has become much more effective in the latest years (as consequence of the crisis) than previous literature suggested. Following up on that, it seems that exchange rate regained some of its rather historical importance while conducting monetary policy...
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Exchange Rate Pass-Through to Domestic Prices: The Case of the Czech Republic
Hájek, Jan ; Horváth, Roman (advisor) ; Benčík, Daniel (referee)
In this thesis, we examine the exchange rate pass-through phenomenon in the Czech Re- public over 1998:1-2014:1 period. As our vector autoregression results indicate, short-term pass-through effect slowed down and prolongated its duration substantially. Consequently, the accumulated value to be transmitted increased compared to previous findings. In the case of exchange rate pass-through effect to CPI, the accumulated response after 18 months accounts for about 40-60 per cent. In this regard, our time-varying results using unique Chebyshev Time Polynomials points to period 2008-2014 to be the leading cause. It seems that during macroeconomically less stable periods the exchange rate pass-through in the Czech Republic tends to increase. Even though the consensus on the pass-through lev- els and its development over time is rather scarce, we find support for our conclusions. More interestingly, having in mind November's currency interventions of the Czech Na- tional Bank to weaken koruna (and thus avoiding deflation), our results reveal that this measure has become much more effective in the latest years (as consequence of the crisis) than previous literature suggested. Following up on that, it seems that exchange rate regained some of its rather historical importance while conducting monetary policy...
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Analysis of inflation in the Czech Republic
Holakovská, Adéla ; Formánek, Tomáš (advisor) ; Dlouhá, Zuzana (referee)
This work is focused on econometric analysis of inflation in the Czech Republic, there is also reported an analysis of inflation in Austria and continuity of both countries to the dominant German economy. The inflation with its forms and possibilities of measuring is described in the first part of this work. There is also mentioned the influence of Czech national bank on the inflation. Next, there is shown the impact of foreign exchange rates and inflation. Consequently there are described characteristics of time series, which are important from viewpoint of construction of econometric models. Next, there is described theory of econometrics analysis, focused on ordinary least squares method and method of instrumental variables. The empirical part contains econometric analysis of inflation itself, using models described in theoretical part. Moreover, this work includes other models, coming out of economic hypothesis. Firstly, it analyses inflation in Germany as the reference country. Secondly, further analysis performs inflation in the Czech Republic and Austria. Finally, an analysis based on ERPT (exchange rate pass-through) models is given. In conclusion, the results are well summarized and compared.
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Is import of goods from european countries to Czech republic more or less influenced by changes in nominal and real exchange rates than in non european countries?
Vereš, Jan ; Stroukal, Dominik (advisor) ; Slaný, Martin (referee)
This bachelor thesis analyses the connection between import of goods from foreign countries to Czech Republic and the exchange rate changes. The initial hypothesis of this paper is to prove that the depreciation of domestic currency has positive influence on balance of trade balance. For this purpose there is eight econometric models which were created by using time series from years 2003 to 2016. These models are divided in pairs among four chosen countries. For each country two models were created that follow the development of trade balance between Czech Republic and one of the countries in two different time frames. All the models always use the real effective exchange rate, growth rate of GDP for Czech Republic and growth rate of GDP for one of the countries as explanatory variable. It is connected with the second task of this thesis, which is the analysis of the differences in the behaviour of the models that belong to the countries which are members of the EU and these that are not. The aim is to find out whether the existence of tariffs on imported goods from countries out of the EU causes visible differences in the behaviour of the variables that were included in the models. Based on the outcomes of all eight models the main hypothesis has been proved right for three out of four countries. In the models for Germany, China and France the relation of real exchange rate and trade balance came out as positive in long term, in short term the outcome was ambiguous. The second question of this thesis has been answered, but its added value is questionable. The final models for each state do show some noticeable differences and they can be used to determine if the influence of the change of exchange rates on trade balance is smaller or bigger in the countries where tariffs are used. On the other hand, from the results we can learn that the sample of only four countries is insufficient for the deduction of any conclusions.
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Econometric analysis of inflation in open economy
Rebrova, Yulia ; Formánek, Tomáš (advisor) ; Kuchina, Elena (referee)
This bachelor thesis is focused on an econometric analysis of the inflation in an open economy. The aim of this paper is to investigate factors which influence the price level. A priority is given to the analysis of Austrian and Czech economies and of their dependence on the dominant German economy. Different specifications of Phillips curve and Exchange Rate Pass-Through method are used to breakdown the inflation rate. Theoretical part of the thesis carefully summarizes already known facts about inflation and its measuring. Moreover, it includes a closer look at econometrical models which will be used in this paper. The models for each country are developed and compared in the last part of this thesis. Results show that economies of selected countries underline macroeconomic theory and the inflation rate can be expressed by Phillips curve whereas Exchange Rate Pass-Through models cannot explain the behavior of the price level well. This paper reveals the complexity of the topic.
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