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Monetary transmission and the financial sector in the Czech Republic

Author

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  • Tomáš Havránek
  • Roman Horváth
  • Jakub Matějů

Abstract

In this paper, we (1) examine the interactions of financial variables and the macroeconomy within the block-restriction vector autoregression model and (2) evaluate to what extent the financial variables improve the forecasts of GDP growth and inflation. For this reason, various financial variables are examined, including those unexplored in previous literature, such as the share of liquid assets in the banking industry and the loan loss provision rate. Our results suggest that financial variables have a systematic and statistically significant effect on macroeconomic fluctuations. In terms of forecast evaluation, financial variables in general seem to improve the forecast of macroeconomic variables, but the predictive performance of individual financial variables varies over time, even though it strengthens during the 2008–2009 crisis. The results give some support for the risk-taking channel of monetary policy, as the level of the monetary policy rate is positively associated with the loan loss provision rate of commercial banks. Finally, a more stable financial system is found to contribute to faster economic growth. Copyright Springer Science+Business Media, LLC. 2012

Suggested Citation

  • Tomáš Havránek & Roman Horváth & Jakub Matějů, 2012. "Monetary transmission and the financial sector in the Czech Republic," Economic Change and Restructuring, Springer, vol. 45(3), pages 135-155, August.
    • Handle: RePEc:kap:ecopln:v:45:y:2012:i:3:p:135-155
    DOI: 10.1007/s10644-011-9106-z
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    Cited by:

    1. Dominika Kolcunova & Tomas Havranek, 2018. "Estimating the Effective Lower Bound on the Czech National Bank’s Policy Rate," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(6), pages 550-577, December.
    2. Ján Malega & Roman Horváth, 2017. "Financial Stress in the Czech Republic: Measurement and Effects on the Real Economy," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(3), pages 257-268.
    3. repec:cnb:ocpubv:rb11/2 is not listed on IDEAS
    4. Michal Franta & Roman Horvath & Marek Rusnak, 2014. "Evaluating changes in the monetary transmission mechanism in the Czech Republic," Empirical Economics, Springer, vol. 46(3), pages 827-842, May.
    5. repec:cnb:ocpubv:rb09/2 is not listed on IDEAS
    6. repec:cnb:ocpubv:rb10/2 is not listed on IDEAS
    7. Bello K. Ajide, 2020. "Fragmentation and financial development in Sub-Saharan Africa Countries: the case of diversity debit versus diversity dividend theses," Economic Change and Restructuring, Springer, vol. 53(3), pages 379-428, August.
    8. Horvath, Roman & Petrovski, Dragan, 2013. "International stock market integration: Central and South Eastern Europe compared," Economic Systems, Elsevier, vol. 37(1), pages 81-91.
    9. Rusnák, Marek, 2016. "Nowcasting Czech GDP in real time," Economic Modelling, Elsevier, vol. 54(C), pages 26-39.
    10. Michal Franta & David Havrlant & Marek Rusnák, 2016. "Forecasting Czech GDP Using Mixed-Frequency Data Models," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 12(2), pages 165-185, December.
    11. Hamid Baghestani & Liliana Danila, 2014. "Interest Rate and Exchange Rate Forecasting in the Czech Republic: Do Analysts Know Better than a Random Walk?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(4), pages 282-295, September.
    12. repec:cnb:ocpubv:rb12/1 is not listed on IDEAS
    13. Kehinde Damilola Ilesanmi & Devi Datt Tewari, 2020. "Financial Stress Index and Economic Activity in South Africa: New Evidence," Economies, MDPI, vol. 8(4), pages 1-19, December.
    14. repec:wdi:papers:2011-1028 is not listed on IDEAS
    15. Jan Bruha, 2011. "Retail Credit Premiums and Macroeconomic Developments," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2010/2011, chapter 0, pages 133-140, Czech National Bank.
    16. Niyati Bhanja & Arif Dar, 2015. "“The beauty of gold is, it loves bad news”: evidence from three major gold consumers," Economic Change and Restructuring, Springer, vol. 48(3), pages 187-208, November.
    17. Roman Horvath, 2012. "Do Confidence Indicators Help Predict Economic Activity? The Case of the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(5), pages 398-412, November.
    18. repec:cnb:ocpubv:rb12/2 is not listed on IDEAS
    19. Tihana Skrinjaric, 2022. "Macroeconomic effects of systemic stress: a rolling spillover index approach," Public Sector Economics, Institute of Public Finance, vol. 46(1), pages 109-140.
    20. Jakub Rysanek & Jaromir Tonner & Stanislav Tvrz & Osvald Vasicek, 2012. "Monetary Policy Implications of Financial Frictions in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(5), pages 413-429, November.
    21. repec:cnb:ocpubv:rb10/1 is not listed on IDEAS
    22. repec:cnb:ocpubv:rb09/1 is not listed on IDEAS

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    More about this item

    Keywords

    Macroeconomic and financial linkages; Vector autoregressions; Forecasting; E44; E58; E47; G17;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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