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The monetary policy and financial stress: the empirical analysis
Štimpl, Marek ; Horváth, Roman (advisor) ; Seman, Vojtěch (referee)
This work is concerned with interrelations between monetary policy instrument - policy rate, key macroeconomic control variables - GDP, inflation, and financial stress. As a proxy for financial stress we consider composed financial stress index for the Czech Republic. We estimate the SVAR model, which allows for more than one variable to be endogenous and also for contemporaneous relations. Resulting from the SVAR analysis we conclude that financial stress is definitely a relevant factor for policy-making decisions. In the long term, rising levels of financial stress is decreasing the policy rate, on the other hand increase in policy rate is significantly stressful event for financial markets. Financial stress is significantly a negative factor in terms of real output.
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Risk Aversion, Financial Stress and Their Non-Linear Impact on Exchange Rates
Adam, Tomáš ; Benecká, Soňa ; Matějů, Jakub
This paper shows how the reaction of selected emerging CEE currencies to increased uncertainty depends on market sentiment in a core advanced economy or even on the global scale. On the example of the Czech koruna, a highly stylized model of portfolio allocation between EUR- and CZK-denominated assets suggests the presence of two regimes characterized by different reactions of the exchange rate to increased stress in the euro area. The “diversification" regime is characterized by appreciation of the koruna in reaction to an increase in the expected variance of EUR assets, while in the “flight to safety" regime, the koruna depreciates in response to increased variance. We suggest that the switch between regimes may be related to changes in risk aversion, driven by the actual level of strains in the financial system as captured by financial stress indicators. Using the Bayesian Markov-switching VAR model, the presence of these regimes is identified in the case of the Czech koruna and to a lesser extent in the case of the Polish zloty and the Hungarian forint. We find that a slight increase in euro area financial stress causes the koruna to appreciate, but as financial market tensions intensify (and investors’ risk aversion increases), the Czech currency depreciates in response to a financial stress shock.
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