Performance and financing of the corporate sector: the role of foreign direct investment

Foreign direct investment has been one of the main drivers of economic developments over the past few years in Central and Eastern Europe (CEE). Within the ongoing globalization and international division of labor, a large number of foreign companies have established production units in CEE countries to benefit from low labor costs and other advantages. This study looks both in theoretical and empirical terms at whether large foreign presence has also affected domestic firms. Foreign firms might both intentionally and unintentionally influence the productivity, financing and export performance of local firms within the same industry or across industries along the production chain via sub-supplier and client linkages. Economic theory does not suggest unambiguous answer to a question whether the influence is positive or negative. For answering the question, both firm-level and industry-level data on performance, financing and exports and interactions of firms within production chain in the Czech Republic are analyzed.foreign direct investment; productivity; corporate finance; export performance

Political Economy of Public Deficit: Perspectives for Constitutional Reform

The paper uses a dynamic inconsistency model known from monetary policy to assess three alternative proposals how to reform fiscal constitution in order to limit government’s incentive to use fiscal policy for maximizing political support. The return to ever-balanced-budget rule, state-contingent rules, and the establishment of an independent Fiscal Policy Committee with power to set public deficit with the aim of stabilizing the economy are discussed from the constitutional perspective, analyzing different incentives that these proposals create for government and alternative means to enhance credibility of the arrangement.fiscal policy; dynamic inconsistency; political economy; public deficit

Productivity, Export Performance, and Financing of the Czech Corporate Sector: The Effects of Foreign Direct Investment

The article looks in both theoretical and empirical terms at whether large foreign presence has affected domestic firms. Foreign firms might both intentionally and unintentionally influence the productivity, financing, and export performance of local firms within the same industry or across industries along the production chain via supplier and client linkages. Economic theory does not suggest an unambiguous answer to the question of whether the influence is positive or negative. To answer this question, both firm-level and industry-level data on performance, financing, and exports and interactions of firms within the production chain in the Czech Republic are analyzed.foreign direct investment; spillovers; productivity; corporate finance; export performance

Foreign Banks, Foreign Lending and Cross-Border Contagion: Evidence from the BIS Data

The article discusses the role of foreign banks and foreign lending in the CEE countries from the financial stability perspective using the data on international banking business. The pattern of foreign banks’ involvement is analyzed and the risk of cross-border contagion explored, focusing on three aspects: maturity of cross-border exposures, concentration of foreign creditors and the existence of common creditor.contagion; banks; financial stability; common creditor

Foreign Exchange Intervention: The Theoretical Debate and the Czech Koruna Episode

The strong appreciation of the Czech koruna over 2001?2002 and the foreign exchange interventions conducted by the Czech central bank under its inflation-targeting regime provide a good opportunity to consider the pros and cons of FX intervention, an often-controversial monetary-policy instrument. This article considers the koruna?s said appreciation, possible causation, and the policy measures taken by the central bank then to counter the appreciation. The theoretical channels through which foreign exchange intervention may influence the exchange rate, and empirical evidence of their effectiveness are presented. Finally, the FX interventions of the Czech National Bank are discussed and those conducted in a rather secret manner over July?September 2002 assessed as relatively effective.foreign exchange intervention; exchange rate; monetary policy; transmission channels

Political Pressure on Central Banks: The Case of the Czech National Bank (in English)

As the independence of national central banks in the European Union is one of the main institutional features of the EU’s monetary constitution, this paper considers whether central-bank monetary policy is conducted independently or if it is affected by political pressure. Specifically, the author applies Thomas Havrilesky’s methodology to measure political pressure on the Czech National Bank in testing whether taken monetary policy was influenced by outside pressure.monetary policy; pressure groups; political economy

Foreign Banks, Foreign Lending and Cross-Border Contagion: Evidence from the BIS Data (in English)

The paper discusses the role of foreign banks and foreign lending in central and east European countries from the financial-stability perspective using Bank for International Settlements data on global banking. The pattern of foreign bank involvement in the region is analyzed and the risk of cross-border contagion explored, focusing on three topics: the maturity of cross-border exposures, the concentration of foreign creditors, and the existence of common creditors.contagion; banks; financial stability; common creditor

Political Pressure on Central Banks: The Case of the Czech National Bank

As the independence of national central banks in the European Union is one of the main institutional features of the monetary constitution of the EU, the paper tries to find out whether central banks are factually independent in their decisions about interest rates if they face political pressure. The Havrilesky (1993) methodology of the political pressure on central banks is applied to the Czech National Bank, a central bank of one of the new EU Member States, in order to test whether the conducted monetary policy has been influenced by political pressure from various interest groups.political economy; monetary policy; pressure groups

Testing the Effectiveness of the Czech National Bank’s Foreign-Exchange Interventions

This article reviews several approaches to testing the effectiveness of foreign-exchange interventions and applies some of these to data on interventions made by the Czech National Bank in 2001 and 2002. The reaction function of the CNB and the impact of interventions on exchange rates and on conditional and implied volatility are estimated, and the successfulness of interventions is discussed within the event-study approach. The results indicate that the interventions by the central bank had only a minor, short-term effect on exchange rates and, to a certain extent, contributed to increased conditional and implied volatility.effectiveness of intervention; event study; exchange rate; foreign-exchange intervention

Foreign Direct Investment, Corporate Finance, and the Life Cycle of Investment

This article discusses the effect of foreign direct investment on the corporate sector in the Czech Republic. The analysis uses subaggregated corporate data from a unique Deutsche Bundesbank database containing an almost complete sample of German enterprises that invested in the Czech Republic between 1996 and 2004. Attention was given to two issues: the role of intra-group financing in foreign-owned corporations and the life cycle of direct investments.corporate finance; foreign direct investment; life cycle of investment