Modelling the Second-Round Effects of Supply-Side Shocks on Inflation

Since the introduction of inflation targeting in the Czech Republic in 1998, supply-side factors have had a strong direct influence on CPI inflation on several occasions. This paper uses a small-scale dynamic rational expectations model based on an open-economy version of Fuhrer- Moore-type staggered wage setting to quantify the second-round effects of selected supply-side shocks and of shocks to the nominal exchange rate on wages and subsequently on inflation. In order to analyse the desired reaction of the central bank to these shocks, optimal time-consistent policy rules are derived within the presented New-Keynesian framework. Impulse response analyses are then carried out to demonstrate the model's dynamics under various policy rules corresponding to different loss functions of the central bank. The conclusions presented in the paper suggest that the second-round effects of shocks to import prices and the nominal exchange rate on inflation should not be ignored in practical policy-making.monetary policy, optimal policy rules, inflation targeting.

Dynamical stability of fluid spheres in spacetimes with a nonzero cosmological constant

The Sturm-Liouville eigenvalue equation for eigenmodes of the radial oscillations is determined for spherically symmetric perfect fluid configurations in spacetimes with a nonzero cosmological constant and applied in the cases of configurations with uniform distribution of energy density and polytropic spheres. It is shown that a repulsive cosmological constant rises the critical adiabatic index and decreases the critical radius under which the dynamical instability occurs.Comment: 3 pages, 1 figure, to appear in "Proceedings of the 11th Marcel Grossmann Meeting on General Relativity", eds H. Kleinert, R. T. Jantzen, R. Ruffin

Visualizing spacetimes via embedding diagrams

It is hard to imagine curved spacetimes of General Relativity. A simple but powerful way how to achieve this is visualizing them via embedding diagrams of both ordinary geometry and optical reference geometry. They facilitate to gain an intuitive insight into the gravitational field rendered into a curved spacetime, and to assess the influence of parameters like electric charge and spin of a black hole, magnetic field or cosmological constant. Optical reference geometry and related inertial forces and their relationship to embedding diagrams are particularly useful for investigation of test particles motion. Embedding diagrams of static and spherically symmetric, or stationary and axially symmetric black-hole and naked-singularity spacetimes thus present a useful concept for intuitive understanding of these spacetimes' nature. We concentrate on general way of embedding into 3-dimensional Euclidean space, and give a set of illustrative examples.Comment: 8 pages, 5 figure

Diversification and Systemic Risk: A Financial Network Perspective

In this paper, we study the implications of diversification in the asset portfolios of banks for financial stability and systemic risk. Adding to the existing literature, we analyse this issue in a network model of the interbank market. We carry out a simulation study that determines the probability of a systemic crisis in the banking network as a function of both the level of diversification, and the connectivity and structure of the financial network. In contrast to earlier studies we find that diversification at the level of individual banks may be beneficial for financial stability even if it does lead to a higher asset return correlation across banks

Implementing the New Structural Model of the Czech National Bank

The purpose of the paper is to introduce the new “g3†structural model of the Czech National Bank and illustrate how it is used for forecasting and policy analysis. As from January 2007 the model was regularly used for shadowing official forecasts, and in July 2008 it became the core model of the CNB. In the paper we highlight the most important and unusual features of the model and discuss tools and procedures that help us in forecasting and assessing the economy with the model. The paper is not meant to provide a full derivation of the model or the complete characteristics of its behavior and should not be regarded as model documentation. Rather, the paper demonstrates how the model is used and how it contributes to policy analysis.DSGE, filtering, forecasting, general equilibrium, monetary policy.

An Economy in Transition and DSGE: What the Czech National Bank’s New Projection Model Needs

Since the introduction of the inflation targeting regime in 1998 the Czech National Bank has made considerable progress in developing formal tools for supporting its Forecasting and Policy Analysis System. This paper documents the advances in the ongoing research aimed at developing a DSGE small open economy model designed to capture some of the most important features of the Czech economy - both the business-cycle regularities and the recent developments associated with the economy's transition and its convergence towards the industrialized European countries. The model in its current form is able to capture trends in relative prices, allow for medium-convergence in expenditure shares, and deal with the undercapitalization and investment inflow issues. Besides the model exhibits real and nominal rigidities that are in line with the recent New Open Economy Macroeconomics literature built fully on first principles. The innovative features of our model include the international currency pricing scheme permitting flexible calibration of import and export price elasticities along with the disconnect of the nominal exchange rate, the policy reaction function with a parameterized forecast horizon, and a generalized capital accumulation equation with imperfect intertemporal substitution of investment..

A dynamic network model to measure exposure diversification in the Austrian interbank market

We propose a statistical model for weighted temporal networks capable of measuring the level of heterogeneity in a financial system. Our model focuses on the level of diversification of financial institutions; that is, whether they are more inclined to distribute their assets equally among partners, or if they rather concentrate their commitment towards a limited number of institutions. Crucially, a Markov property is introduced to capture time dependencies and to make our measures comparable across time. We apply the model on an original dataset of Austrian interbank exposures. The temporal span encompasses the onset and development of the financial crisis in 2008 as well as the beginnings of European sovereign debt crisis in 2011. Our analysis highlights an overall increasing trend for network homogeneity, whereby core banks have a tendency to distribute their market exposures more equally across their partners

Correlated Assets and Contagious Defaults

We study systemic risk in a network model of the interbank market where the asset returns of the banks in the network are correlated. In this way we can study the interaction of two important channels for systemic risk (correlation of asset returns and contagion due direct financial linkages). We carry out a simulation study that determins the probability of a systemic crisis in the banking network as a function of both the asset correlation, and the connectivity and structure of the financial network. An important observation is the fact that the relation between asset correlation and the probalility of a systemic crisis is hump-sharped; in particular, lowering the correlation between the assets returns of different banks does not always imply a lower probability of a systemic crisis

A systems view of risk factors for knee osteoarthritis reveals insights into the pathogenesis of the disease.

Early detection of osteoarthritis (OA) remains a critical yet unsolved multifaceted problem. To address the multifaceted nature of OA a systems model was developed to consolidate a number of observations on the biological, mechanical and structural components of OA and identify features common to the primary risk factors for OA (aging, obesity and joint trauma) that are present prior to the development of clinical OA. This analysis supports a unified view of the pathogenesis of OA such that the risk for developing OA emerges when one of the components of the disease (e.g., mechanical) becomes abnormal, and it is the interaction with the other components (e.g., biological and/or structural) that influences the ultimate convergence to cartilage breakdown and progression to clinical OA. The model, applied in a stimulus-response format, demonstrated that a mechanical stimulus at baseline can enhance the sensitivity of a biomarker to predict cartilage thinning in a 5 year follow-up in patients with knee OA. The systems approach provides new insight into the pathogenesis of the disease and offers the basis for developing multidisciplinary studies to address early detection and treatment at a stage in the disease where disease modification has the greatest potential for a successful outcome