Prague Economic Papers, 2016 (vol. 25), issue 5

Original contributions, Original article, Research article

The Impact of Economic Crisis on Convergence Processes in European Union Regions

Beata Bal-Domańska

Prague Economic Papers 2016, 25(5):509-526 | DOI: 10.18267/j.pep.574  

The effects of the financial crisis, that started in 2008 and first emerged on the American housing market, have been experienced by many European economies. The purpose of this article is to attempt to measure and assess the sensitivity of convergence processes to crisis in European Union's regional economies taking into consideration their sectoral structure. Particular resistance to crisis is associated with the presence of "modern" sectors of the economy. The study covers the panel of the European Union NUTS-2 level regions in the period 2005-2011. In the analysis, the application of panel data allows for inclusion of the specific non-measurable...

Exchange Rates Forecasting: Can Jump Models Combined with Macroeconomic Fundamentals Help?

Tomáš Bunčák

Prague Economic Papers 2016, 25(5):527-546 | DOI: 10.18267/j.pep.581  

Connection between macroeconomic variables and foreign exchange (FX) rates evaluated in the context of out-of-sample forecasting is a well-known problem in economics. We propose a method that utilizes stochastic models based on jump processes (namely the normal inverse Gaussian and Meixner models), combines them with macroeconomic fundamentals, and using a moving (rolling or recursive) regularized estimation procedure produces forecasts of FX rates. These are compared to benchmark models, namely the direct forecast and the Gauss model forecast. Empirical out-of-sample experiments are performed on EUR/USD and USD/DKK currencies.

Short Sale and Index Futures Mispricing: Evidence from the Warsaw Stock Exchange

Edyta Marcinkiewicz

Prague Economic Papers 2016, 25(5):547-559 | DOI: 10.18267/j.pep.579  

The study attempts to assess the effects of lifting short sale restrictions on the Warsaw Stock Exchange in terms of futures pricing efficiency. The approach implemented in the article involves evaluation and comparison of the mispricing series of the WIG20 index futures listed on the WSE, in a one-year time span before and after the regulatory change introduced in 2010. The results show that lifting short sale constraints has increased the efficiency of the Polish futures market. There was a decline both in the number of mispricing occurrences, and in the mean level and dispersion of deviations from the fair values, especially with regard to underpriced...

Cross-Border Effects of Car Scrapping Schemes: The Case of the German Car Scrapping Programme and its Effects on the Czech Economy

Petr Maleček, Ota Melcher

Prague Economic Papers 2016, 25(5):560-576 | DOI: 10.18267/j.pep.567  

Many countries decided to launch car scrapping schemes during the 2009 crisis in order to support their car industries and to boost domestic demand. Owing to the existence of significant international trade links in the automotive sector, there is also a strong theoretical foundation for cross-border effects of such scrappage programmes. This paper explores spillovers of the German scheme to the Czech economy on the basis of a close mutual trade link between these two countries and the size of the Czech automotive sector. It is demonstrated that the German programme provided for a significant boost for Czech personal car exports, which were also coupled...

Versioning Goods and Joint Purchase: Substitution and Complementarity Strategies

Francisco Martínez-Sánchez

Prague Economic Papers 2016, 25(5):577-590 | DOI: 10.18267/j.pep.575  

In the present paper, we develop a monopoly model of vertical product differentiation for analysing the monopolist's decision about the possibility of versioning goods as substitutes or complements when consumers can buy them simultaneously. In this context, we find that versioning goods as substitutes or complements is optimal for the monopolist if the cost of designing the bundle (the purchase of one unit of each version) is increasing, which implies that making variants of closer substitutes reduces costs. However, if making variants of closer substitutes is costly, the monopolist versions goods as complements only. The final result also depends...

Vote Buying and Victory of Election: The Case of Taiwan

Chyi-Lu Jang, Chun-Ping Chang

Prague Economic Papers 2016, 25(5):591-606 | DOI: 10.18267/j.pep.576  

This paper examines the effect of vote buying on the vote shares of multiple parties using maximum likelihood estimation of a Dirichlet distribution in a panel of 23 counties of Taiwan over the period of 1998-2008. We find that vote buying significantly influences the vote shares of multiple parties in Taiwan parliamentary elections. In particular, we find that vote buying reduces the likelihood of Chinese National Party (KMT) and Democratic Progressive Party (DPP) votes by 10% and 11%, respectively. Our results provide strong evidence that vote buying decreases the probability of electoral success. We conclude that vote buying does not ensure victory...

Is There Any Time-Varying Relationship between Fiscal and Trade Deficits in Turkey?

Bariş Gök, Abdurrahman Nazif Çatik

Prague Economic Papers 2016, 25(5):607-616 | DOI: 10.18267/j.pep.577  

In this article we analyse the evolution of the relationship between budget and trade deficits in Turkey covering the period 1985:1 to 2013:4. The structural break tests suggest the existence of a regime shift after the severe 2001 crisis. Time-varying responses obtained from the TVP-VAR model up to 2003 support the Keynesian view by providing evidence in favour of twin deficits, whereas the remaining responses suggest the remarkable divergence between fiscal and trade deficits.

Why Are Savings Accounts Perceived as Risky Bank Products?

Hana Džmuráňová, Petr Teplý

Prague Economic Papers 2016, 25(5):617-633 | DOI: 10.18267/j.pep.578  

Risk management for banking products can be challenging in general, but is even more risky in a global, low interest rate environment. This paper deals with the risk management of savings accounts, a bank product defined as a non-maturing account with embedded option that bears a relatively attractive rate of return. We focus on the interest rate risk of savings accounts. By constructing the replicating portfolio and simulating market rates and client rates, we show that under the severest scenario, some banks in the Czech Republic might face a significant capital shortage in next two years if market rates start to increase dramatically from recent...