Prague Economic Papers, 2017 (vol. 26), issue 2

Univariate and Bivariate Volatility in Central European Stock Markets

Claudiu Boţoc

Prague Economic Papers 2017, 26(2):127-141 | DOI: 10.18267/j.pep.598  

This paper examines if the volatility exhibits a symmetric or an asymmetric response to past shocks, particularly the relevance of structural breaks for Central European (hereinafter referred to as "CEE") stock markets. In addition, it is of great interest to see if the CEE emerging markets are correlated with other emerging ones, as well as to analyse the correlation with the developed markets, for optimizing investment portfolios. Using a CEE group approach (regional index) and daily data from 2002 to 2015, the results suggest that markets react differently to similar negative and positive returns, except for the rapid growth period, when the greed...

Government Size and Economic Growth in Turkey: A Threshold Regression Analysis

Pelin Varol Iyidogan, Taner Turan

Prague Economic Papers 2017, 26(2):142-154 | DOI: 10.18267/j.pep.600  

We examine the relationship between the government size and economic growth by using threshold regression model and quarterly data over the period 1998:1-2015:1 for Turkey. Our results provide a strong evidence for the existence of a non-linear relationship. The estimated threshold levels, as a percentage of GDP, are 16.5 for the government total expenditures, 12.6 for consumption expenditures and 3.9 for investment expenditures. We find that an increase in the government size leads to a significant rise (decline) in economic growth rate when the government size is below (above) the threshold level, confirming the predictions of Armey curve. Our findings...

GDP Forecasting by Czech Institutions: An Empirical Evaluation

Jiří Šindelář

Prague Economic Papers 2017, 26(2):155-169 | DOI: 10.18267/j.pep.601  

This paper evaluates the accuracy of real GDP growth forecasts published in the period 1995-2013 by two Czech institutions: the Ministry of Finance (MF) and the Czech National Bank (CNB). A two-stepped approach is adopted: first a battery of forecasting errors (MAE, RMSE, MASE) is calculated, complementary to evaluation papers already available. Then statistical analysis is carried out by comparing both MF and CNB forecasts with OECD, European Commission and consensus benchmarks (Kruskal-Wallis test), assessing the presence of systemic bias (Wilcoxon test) and determining their incremental improvement (Page trend test). The results show that although...

(Local) Wage Settings and (International) Entry Deterrence

Domenico Buccella

Prague Economic Papers 2017, 26(2):170-187 | DOI: 10.18267/j.pep.602  

The present paper investigates the use of national wage settings as a mechanism to deter entry via foreign direct investment (FDI) in a unionized monopoly industry. A union which sets centralized wages in a multi-unit firm can both decentralize and change the agenda to prevent the market entry of a non-unionized firm. The adoption of the efficient bargaining agenda is especially effective to deter entry because it lowers the fixed-cost threshold the entrant can bear. Moreover, through side-payments, the incumbent and the union can have common interests in modifying the wage setting to reach outcomes that is Pareto-superior to duopoly. However,...

IPO Price, Heterogeneous Priors and Gradual Information Flows

Yu Jiang, Xianming Fang, Haofei Wang

Prague Economic Papers 2017, 26(2):188-197 | DOI: 10.18267/j.pep.603  

This paper attempts to develop a theoretical framework that builds on heterogeneous beliefs to explain the financial anomalies related to IPO stocks. In particular, we develop a dynamic analysis framework to study the valuation of IPO price and the short-term probability of falling below IPO price based on perspectives of investors' heterogeneous priors and gradual information flow. Our study shows that the valuation of IPO price increases as the degree of heterogeneity due to investors' heterogeneous priors increases. Moreover, the short-term probability of falling below IPO price increases as the degree of investors' cognitive biases caused by gradual...

Competition of Currencies: An Alternative to Legal Tender

Kateřina Gawthorpe

Prague Economic Papers 2017, 26(2):198-212 | DOI: 10.18267/j.pep.604  

The aim of this paper is to question the scenario with legal tender law by an analysis of potential competition of alternative currencies. To accomplish such a goal, this study offers an original version of the dynamic macroeconomic model based on the money in the utility function. This model compares the current monetary conditions with the potential situation permitting more currencies circulating alongside. The main assumption about individuals' preferences over stable currencies underlines the whole paper with emphasis on the mathematical model. The outcome of the model reveals lower inflation rate in scenario with competition among currencies...

International Competitiveness of Czech Manufacturing - A Sectoral Approach with Error Correction Model

Magdalena Olczyk, Aleksandra Kordalska

Prague Economic Papers 2017, 26(2):213-226 | DOI: 10.18267/j.pep.605  

The main objective of this paper is to find the determinants of the international competitiveness of the manufacturing sectors of the Czech economy, using the database of 13 manufacturing sub-sectors in 1995-2011, with the aid of ECM model. The authors research the question of how much foreign and domestic demand, the level of labour costs, the level of sector innovation intensity, the level of sector openness to foreign markets as well as sectoral labour productivity influence the changes in their trade balance. The results of the analysis conducted show substantial differences in the roles particular variables play in explaining the net exports in...

Valuation Standards for Insurance Companies in the Financial Theory

Milan Hrdý, Eva Ducháčková

Prague Economic Papers 2017, 26(2):227-239 | DOI: 10.18267/j.pep.606  

This article aims to evaluate the research of the different published opinions on the insurance company valuation, to analyse them and to judge their use in practice. The process of the va-luation of the insurance company is very complicated and there are not many theoretical studies concerning this problem. The valuation of insurance companies should take into account the specifics of insurance activities and should look for the optimal approach. There were different approaches available - the income approach, the market comparison approach, the assets-based approach and the Bond Pricing Model. They can be combined and so there can be created different...

Location of Unwanted Facilities in Prague: NIMBY in Public Administration Hierarchy

Martin Dlouhý, Tomáš Hudeček

Prague Economic Papers 2017, 26(2):240-252 | DOI: 10.18267/j.pep.607  

The paper investigates how the problem of NIMBY (Not-In-My-Back-Yard) related to the location of unwanted facilities is dealt in a hierarchically organized city. The conventional view of NIMBY is based on two premises: first, that locally unwanted facilities are essential to achieve an important societal benefit and realize the public good; second, that selfish opposition of local community prevents the realization of that societal good. The NIMBY effect is studied as a conflict between the City of Prague and its city districts. The official documents of the Prague City Council and of the Prague City Assembly were searched to find examples of decisions...

Control and Takeover of Companies as Strategy of Growth

Gijs Van Dijck

Prague Economic Papers 2017, 26(2):253-254 | DOI: 10.18267/j.pep.612