Estimating structural changes of the Czech economy: How convincing are the symptoms of the economic crisis?

The goal of our contribution is to find possible changes in the Czech economy in the last fifteen years. We are concerned with the questions of stability of the relationships among the key economic variables. These relationships are expressed particularly by the dynamic Okun's law, Phillips curve, IS curve or the Taylor's rule. The cyclical development of the economy is based on the simultaneous estimation of the four (unobserved) natural rates: potential output, NAIRU, equilibrium real interest rate and equilibrium real exchange rate. Unlike the mainstream (DSGE) models we use an alternative, non general equilibrium model without any strong restrictions on the parameter and model equations. Our results (among others) show that the significant changes of parameters are identified only in the period of the last economic downturn beginning the fourth quarter 2008 and that these changes influenced only a part of the key model parameters.Cílem článku je ověření nalezení možných strukturálních změn v české ekonomice v posledních 15 letech. Zajímá nás především otázka stability vztahů mezi klíčovými ekonomickými proměnnými. Těmito vztahy máme na mysli dynamický Okunův zákon, Phillipsovu křivku, IS křivku a Taylorovo pravidlo. Cyklický vývoj ekonomiky je založen na simultánním odhadu čtyř nepozorovaných stavů: potenciálního výstupu, NAIRU, rovnovážné reálné úrokové míry a rovnovážného reálného směnného kurzu. Oproti DSGE modelům hlavního proudu ekonomie využíváme alternativní model, který neklade silné restrikce na parametry a modelové rovnice. Naše výsledky mimo jiné ukazují, že významné změny parametrů jsou identifikovány pouze v období posledního ekonomického poklesu z posledního čtvrtletí roku 2008 a že tyto změny ovlivnily pouze část klíčových modelových parametrů

The macro-financial linkages modelling for the Czech economy

The contribution presents and analyze the model with financialfrictions. It is tailor-made for the Czech economy, and thus contains severalfeatures for capturing Czech stylized facts (a cascade of nominal rigidities, highopenness, real exchange rate appreciation in consumer prices etc.). Linkages between real and financial sectors are incorporated via the state non-contingent debt-contracts within the financial accelerator. Also, the model contains shocks which hit financial variables and propagate through the model into real sectors. The empirical analysis is presented via results of the Bayesian estimation.The contribution presents and analyze the model with financialfrictions. It is tailor-made for the Czech economy, and thus contains severalfeatures for capturing Czech stylized facts (a cascade of nominal rigidities, highopenness, real exchange rate appreciation in consumer prices etc.). Linkages between real and financial sectors are incorporated via the state non-contingent debt-contracts within the financial accelerator. Also, the model contains shocks which hit financial variables and propagate through the model into real sectors. The empirical analysis is presented via results of the Bayesian estimation

Global Sensitivity Analysis of a DSGE model of the Czech Economy

The paper shows some interesting results of Global Sensitivity Analysis on a particular dynamic stochastic general equilibrium model. The key behavior of the Czech economy is approximated by Lubik and Schorfheide model, which is a small-scale structural general equilibrium model of a small open economy. The sensitivity analysis class of methods presented in the paper consists of various individual analyses. Stability mapping analysis detects the parameters which are responsible for potential instability or indeterminacy in the model. Mapping the fit is a useful tool to learn about the linkages that drive the fit of trajectories of particular variables to data. Information provided by the results of mapping the fit can be used to unveil possible trade-offs between the fit of individual observables and maybe also to amend model structure or calibrate parameters properly in order to increase the fit of variables of researcher's interest. Other individual analyses are just mentioned.Článek ukazuje některé zajímavé výsledky globální analýzy citlivosti na konkrétním dynamickém stochastickém modelu všeobecné rovnováhy. Klíčové chování české ekonomiky je aproximováno modelem Lubik-Schorfheide, což je malý strukturální model malé otevřené ekonomiky. Třída metod analýzy citlivosti prezentovaná v tomto článku sestává z různých individuálních analýz. Mapování stability detekuje parametry, které jsou zodpovědné za případnou nestabilitu nebo neurčitost modelu. Mapování vyrovnání je užitečný nástroj, který osvětluje vazby, které ovlivňují těsnost vztahu mezi trajektoriemi modelových proměnných a reálných dat. Informace poskytnuté mapováním vyrovnání mohou být použity k odhalení možných kompromisních vztahů mezi vyrovnáním u jednotlivých proměnných a možná také ke změně modelové struktury nebo apriorní kalibrace ke zvýšení vyrovnání u proměnných výzkumníkova zájmu. Ostatní individuální analýzy jsou jen zmíněny

Dynamic Inflation Model. The Analysis And The Forecast Of The Macroeconomic Effects Of Desinflation Strategy.

The dynamic inflation model is designed explicitly for the needs of the direct inflation targeting which the Czech National Bank (CNB) assumes as a key strategy. The model is elaborated on the basis of previous macroeconomic models MMTS I. and MMTS II. (small model of the Global MacroeconomicAnalysisTeam - version II and I ; for details see Stavrev 1998 and Stavrev 1999), which have been made by the Economic Modelling Division of the CNB. The experience acquiring from using these models pointed out during an identification and a forecasting application that the quality of the model relations quantification can be improved by shorter time intervals among used time series and subsequently by carrying out the adaptive estimation of time varying parameters. The presented model differs from the previous ones in several significant ways : (i) Monthly time series are used, i.e. the new analysis of lagged causal effects and the change of behaviour equations dynamics has had to be performed). (ii) The dynamic model is in a state space form. (iii) Model parameters are time varying and their development is estimated adaptively by the Kalman filter. The dynamic inflation model can be used for the analysis as well as for the forecasting of the macroeconomic results of the inflation targeting strategy.Inflation, time varying adaptive estimation, forecasting, Kalman filter

Macroeconomic Model of Small Open Economy: Adaptive Parameter Estimation, Behavior Analysis and Optimal Control

Internal so-called state-space representation of dynamic systems became dominating approach in the control theory in 1960s. This paper focuses on taking advantage of such a system description for dynamic economic system identification as well as on using a quantified economic model in search of suitable strategies for short-run economic development. Solving the filtration, prediction and interpolation tasks expressed by internal system description is conditioned by estimating the states of system on the basis of measured system inputs and outputs. Time-varying parameters of a system are often regarded and handled as states. The identification task is written as a stochastic problem in sense of search for an optimal linear unbiased state estimate. A recursive algorithm called Kalman filter is at our disposal to obtain the above estimate that we evaluate as conditional mean (minimizing variance) of an unknown state on the basis of data set affected by disturbances. Choice of a strategy for short-run economic development is then considered to be an optimal control task defined as two-point boundary problem of discrete-time linear-quadratic control (the optimal output and input trajectories track as close as possible the nominal trajectories entered as "wanted" or "planned"). The paper contains an analytical solution of that problem as well as an algorithm applicable to the control of a controlled economic system's model. Identification and optimal control algorithms have been applied to quarterly econometric model of the Czech economy development.

Bayesian Identification of Macroeconomic Model

Macroeconomic model builders try to construct models for the Czech transition economy. They face constrains of data scarcity in terms of short time series of data. Parameters are non-constancy and underspecificated. Since model builder assumptions of identification with respect to data, homogenity and parameter constancy he cannot builds the model. A realist alternative is to choose Bayesian approach to parameters estimation of such a model. The parameter estimation subjects to a learning process and preliminary knowledge about a parameter development is employed. Original extended Kalman filter with backward filter runs is used for simultaneous parameter tracking. The filter is described in the paper. The results of the parameter estimation for the macroeconomic model of the Czech economy are based on real macroeconomic data obtained from the Czech National Bank and the Czech Statistical Office.

Structural changes in the Czech, Slovak and euro area economies during the Great Recession

The goal of this paper is to identify and compare the most important changes in the structure of the Czech economy, as a small open economy with independent monetary policy, the Slovak economy, as a small open economy that entered monetary union, and the economy of the euro area, which has a common monetary policy, during the turbulent period of the Great Recession, the subsequent anaemic recovery and recent disinflationary period. Structural changes are identified with the help of nonlinear dynamic stochastic models of general equilibrium with time-varying parameters. The model parameters are estimated using Bayesian methods and a nonlinear particle filter. The results confirm the similarity of the Czech and Slovak economies and show that in certain respects the structure of the Czech economy might be closer to that of the euro area than that of Slovakia. The time-varying estimates reveal many similarities between the parameter changes in the Czech economy and those in the euro area. In Slovakia, the situation during the Great Recession was dominated by the country’s adoption of the euro, which caused large deviations in its Calvo parameters

The Czech Economy Model: Bayesian Quantitative Analysis of Parameters and Control of Strategies

Facilities of adaptive Bayesian identification as well as utilizing a suitably-rebuilt linearized model as a model controlled by an optimal control system will be demonstrated in this paper. Estimation of time-variant parameters was performed by mean of extended Kalman-Bucy filter with smoothing on base of rather short quarterly time series (dated from 1992, quarter I, to 1996, quarter II), that are not purged of neither seasonalities nor quick jumps due to sudden events in the Czech transitive economy during the period in question. After simultaneous verification, the quantified model was rebuilt into the form of non-linear state equations, which is suitable for applying control. ln handling the future trajectories of state and input variables (i.e. control and exogenous variables, respectively), there was the optimal control task solved as a dual problem  oj optimal control of a linearized discrete-time model (with time-variant parameters) by means of a quadratic junctional(with time-variant weights) which is to be minimized. The above procedures were applied to the Small Czech Economy's Model, where we were trying to find out some admissible input and output trajectories, which would represent up-to-date factual alternative strategies of development of the Czech economy.

The Iterative Kalman Filter Smoother And Its Applications

The Iterative Kalman filter Smoother (IKFS) is the method for estimation of initial states and parameters of models in the state space form. This estimation procedure is described in the paper along with its basic properties. Its main advantage stems from the fact that it only consists of several runs of Kalman filter, which is well-known and highly used estimation procedure in economic modeling. The procedure of Iterative Kalman filter Smoother is then used to estimate the equilibrium paths of unobserved macroeconomic variables, equilibrium real effective exchange rate and equilibrium of real interest rate. The above-mentioned application is an example how Iterative Kalman filter Smoother is employed to identify unobserved states and time-varying parameters simultaneously.Extended Kalman filter

Estimate of the Czech National Bank’s Preferences in NOEM DSGE model

This article deals with estimation of preferences of the Czech National Bank. New Keynesian small open economy model developed by Gali and Monacelli with optimal commitment monetary policy is considered in order to estimate them. The article uses the solution for optimal commitment policy proposed by R. Dennis. Estimates of the model parameters are obtained by Bayesian estimation technique with use of the Metropolis-Hastings algorithm and the Kalman filter. The diagnostics proposed by Brooks and Gelman and Geweke are carried out to examine the konvergence of the Markov chain. We found out that the Czech National Bank pays a little attention to output stabilization in comparison to its concern over inflation targeting. The results indicates that the Czech National Bank's most important objective is inflation targeting. This result is in accordance with proclaimed monetary policy of the Czech National Bank.monetary policy, optimal commitment policy, central bank’s preferences, small open economy, New Keynesian, DSGE, Bayesian estimation