Debt management when monetary and fiscal policies clash: some empirical evidence

We explore the effects of fiscal and monetary policy shocks on key debt management variables and provide empirical evidence supporting the notion of a strict separation of economic policy from the debt management agenda. We find that a tighter monetary policy coupled with fiscal expansion increases the risk that government debt will have to be rolled over at unusually high cost. This is especially the case in a downturn, where low or even negative interest rates often provide incentives for debt managers to invest predominantly in short-term bonds. Our findings echo the post-crisis environment of low or even negative interest rates, where many debt managers altered their portfolios' structure in favor of short-term bonds. In this respect, we argue that debt managers should use a longer optimization horizon and base their strategy on the medium- and long-term economic outlook.Web of Science23128025

Modeling the Czech Macroeconomy Using the New Keynesian Approach

Import 19/10/2011Tato práce se zabývá ověřením využitelnosti a vysvětlovací schopnosti nového keynesovského makroekonomického modelu na českých datech s ohledem na specifika české ekonomiky. Vyhodnocení je prováděno s ohledem na přilnavost modelu k datům a užitečnost pro monetární analýzu. V teoretické části se disertační práce zaměřuje na rozpory mezi soudobými neoklasickými ekonomy a novými keynesovci jako představiteli hlavních škol obhajujících používání modelů dynamické stochastické všeobecné rovnováhy (DSGE) v hospodářské politice. Ačkoliv oba přístupy vycházejí z některých společných základů, např. mikroekonomických základů strukturálních parametrů a šoků či racionálního chování, liší se zejména v pohledu na pružnost cen a mezd a z toho vyplývající účinnost stabilizační politiky v krátkém období. Z důvodu významnosti monetární politiky v modelech DSGE se tato disertační práce zaměřuje na základní východiska této politiky, včetně Taylorova přístupu, i volbu mezi používáním diskreční politiky a fixních pravidel. Další zkoumanou problematikou je konflikt mezi teoretickou a empirickou koherencí modelu. Postupem času totiž bylo, často vlivem zvýšené výpočetní kapacity, možné dosáhnout stejného stupně empirické koherence s lepší teoretickou konstrukcí. Stěžejní, empirická část práce se zabývá aplikací nového keynesovského modelu na data české ekonomiky. Tento model se skládá ze dvou bloků – domácího, sestávajícího se ze 4 rovnic charakterizujících Phillipsovu křivku, křivku IS, monetární reakční funkci Taylorova typu a vývoj devizového kurzu za podmínky nekryté úrokové parity, a zahraničního (reprezentovaného eurozónou), který je modelován jako uzavřená ekonomika. Odhady na dvou různých délkách časových řad umožňují vypozorovat vliv globální finanční krize (2008, 2009) na velikosti odhadnutých parametrů a předpokládanou dynamiku modelu. Následná analýza impulsní odezvy zkoumá reakci domácích makroekonomických proměnných na domácí a zahraniční šoky Na základě získaných poznatků lze říci, že reakce domácích ekonomických proměnných na vnější šoky vykazují znatelně větší citlivost, jsou-li odhady parametrů modelu založeny na datech zahrnujících období globální finanční krize. Výše popsaný model je následně využit k řešení problému potenciálního přechodu z cílování inflace na cílování devizového kurzu, jenž by předcházel přijetí eura. Tento přechod je modelován prostřednictvím změn jednoduchého optimálního měnového pravidla, pomocí něhož lze charakterizovat příslušné režimy monetární politiky. Následně jsou vyhodnoceny dopady takovéto změny na hodnotu ztrátové funkce centrální banky.This dissertation focuses on the evaluation of New Keynesian Macroeconomic models on the Czech Republic’s data and in the context of the specifics of the Czech economy. The evaluation is conducted in terms of the models data fit and usefulness for monetary policy analysis. In its theoretical part, the dissertation discusses the discord between modern the neoclassical economists, and the new Keynesians as the main school advocating the use of dynamic stochastic general equilibrium models (DSGE) for policy analysis. Although both schools share most of the fundamental views, for instance the need for microfoundations of deep structural parameters and shocks, and rational expectations, they diverge in their views concerning the importance of price and wage rigidities, and the short-run effectiveness of stabilization policy. Owing to the fact that DSGE models are predominantly used for monetary policy analysis, this dissertation deploys and evaluates the DSGE models in the context of different representation of monetary policy response, including the Taylor rule, and the overall tradeoff between using discretionary policy and systematic rules. Another researched aspect in the dissertation pertains to the theoretical and empirical coherence of DSGE models. The restriction of the latter tradeoff has been, however, lifted over time due to advances in computational power, which allowed achieving the same degree of empirical coherence with better theoretical construction. The main, empirical part of the dissertation applies the new Keynesian-type macroeconomic model to the data on the Czech economy. This model consists of two blocks: (i) domestic, which contains of four equations characterizing the Phillips curve, IS curve, Taylor-type monetary policy reaction function, the exchange rate under the uncover interest rate parity condition, and (ii) an analogous foreign block representing the Eurozone and modeled as a closed economy. Estimations of the macroeconomic models are based on two sets of time series to enable analyzing the effect of the 2008 and 2009 global financial crisis on parameter estimates of the model, and its implied dynamics. The latter is studies by means of the impulse response analysis to examine the response of domestic macroeconomic variables to domestic and foreign shocks. The analysis suggests that the response of domestic macroeconomic variables to external shocks is significantly more sensitive, when parameter estimates are based on data including the global financial crisis period. The estimated model is then used to solve the problem of potential transition from inflation to exchange rate targeting that would predate adoption of the euro. This transition is modeled by means of a change in the simple optimal policy rule that could characterize the respective monetary policy regimes. An evaluation is then carried out to study the impact of such transition on the central bank’s loss function value.Prezenční114 - Katedra ekonomievyhově

The impact of macroeconomic shocks on the government debt dynamics: how robust is the fiscal stance of the Czech Republic?

This paper analyzes the effects of macroeconomic shocks on the government debt dynamics in an open economy using the analytical framework of Favero and Giavazzi (2007) extended to an open economy. Applying this modelling approach to the data for the Czech Republic, the authors derive some implications for fiscal policy. The modelling framework includes structural vector autoregression (SVAR) model, estimated using short-term identification restrictions, and non-linear specification of the government debt dynamics. The main variables of the analyzed system are GDP, inflation, the effective interest rate on government debt, government revenues and expenditures, the exchange rate and government debt. The estimation is carried out using the Bayesian approach. The results suggest that allowing for a non-linear dynamics in the government debt to GDP ratio could imply stronger persistence and higher volatility in the responses of government indebtedness to macroeconomic shocks. The fiscal stance of the Czech Republic seems to be most vulnerable to unexpected depreciation of the local currency, discretionary pro-cyclical increases in government expenditures, and deflationary shocks.Web of Science60674272

New keynesian model of macroeconomics policy in the Czech Republic

Import 18/12/2006Prezenční154 - Katedra financ

Řízení vládního dluhu a jeho dynamika : strategie, riziko, alokace

Import 15/04/2016PrezenčníNeuvedenoNeuveden

Interest rate pass-through: A meta-analysis of the literature

The interest rate pass-through describes how changes in a reference rate (the monetary policy, money market or T-bill rate) transmit to bank lending rates. We review the empirical literature on the interest rate pass-through and systematize it by means of meta-analysis and meta-regressions. Using the pass-through to corporate lending rates as the baseline, we find systematically lower estimated pass-through coefficients in studies that focus on the pass-through to consumer lending rates and rates on long-term loans. Also studies estimating the pass-through by averaging all lending rates into one category report a lower pass-through. Importantly, the interest rate pass-through is significantly influenced by the country's macro-financial environment. In economies with deepening stock markets, the estimated pass-through strengthens significantly. Interestingly, after the global financial crisis, the pass-through weakened across the board, including because of growing trade openness and supply chain financing, rising volatility and stock market turnovers, as well as declining central bank independence. Inflation targeting frameworks, if in place, helped diminish this pass-through weakening.Web of Scienc

Fiscal rules in the Visegrad countries

Recently the popularity of fiscal rules has been increasing also due to the impact of macroeconomic and financial shocks on fiscal sustainability. This paper reviews supranational and national fiscal rules implemented in the Visegrad countries (V4). Namely, we base the review and comparison of fiscal rules on the existing literature and the empirical data from the European Commission. According to the Fiscal Rule Strength Index developed by the European Commission, Poland's debt rule as of 1997 received the highest ranking. Poland also received the highest score based on the aggregated Fiscal Rules Index in 2009. The most influential in this respect is the application of an early adjustment mechanism which is triggered once the debt to GDP ratio exceeds 50%. Empirical analysis showed that effectiveness of fiscal rules differs across selected groups of countries.Web of Science61545243

Off the radar: Factors behind the growth of shadow banking in Europe

This paper uses novel data from the European Central Bank and the Eurosystem on non-bank financial intermediation to investigate the potential factors of shadow banking growth for a panel of twenty-four countries in the European Union (EU). We find that the EU shadow banking system is highly procyclical and positively related to increasing demand by long-term institutional investors and to more stringent capital regulation. We show that individual entities in the shadow banking system can act as both complements and substitutes to traditional banking. In addition, we estimate four country-specific models using a Bayesian estimation method. We supplement the panel model estimates, which serve as a priori information, with data from a specific economy. We assert that, although some shadow banking determinants are uniform across countries, other may have heterogeneous effects across countries because of country-specific characteristics.Web of Science443art. no. 10080