Prague Economic Papers, 2014 (vol. 23), issue 3

Original contributions, Original article, Research article

The Reaction Function of Three Central Banks of Visegrad Group

Josef Arlt, Martin Mandel

Prague Economic Papers 2014, 23(3):269-289 | DOI: 10.18267/j.pep.484  

The aim of our paper is to formulate and empirically verify the simple backward looking econometric model of the monetary policy rule, which would be able to describe the development of monetary policy rate, namely only on the basis of statistically measured and at the given time available information. We focus on the Czech National Bank, the National Bank of Poland and the Magyar Nemzeti Bank in the period of January 1999 to April 2012. In the present paper we discuss some methodological problems associated with the ex-post empirical verification of the central bank's monetary policy rule. We construct an empirical model of the monetary policy rule,...

A Monetary Policy Rule Based on Fuzzy Control in an Inflation Targeting Framework

Jaromír Kukal, Tran Van Quang

Prague Economic Papers 2014, 23(3):290-314 | DOI: 10.18267/j.pep.485  

Today inflation targeting regime is often used to conduct monetary policy in most developed economies. In this regime, a central bank manipulates its key interest rate to steer an economy to the objectives it wants to achieve. To implement its monetary policy, Taylor rule is claimed to be a quantitative tool used as a guide for setting interest rate in response to the state of the economy. Despite its widespread popularity, the Taylor rule is just an orientational guidance at best and cannot be followed strictly since it would be against the common practice of conducting monetary policy of most central banks. Therefore, we propose a new rule for inflation...

Interest Rates Close to Zero, Post-crisis Restructuring and Natural Interest Rate

Piotr Ciżkowicz, Andrzej Rzońca

Prague Economic Papers 2014, 23(3):315-329 | DOI: 10.18267/j.pep.486  

Central banks do not seem to account for the impact of interest rates close to zero on the natural interest rate after the bursting of the asset bubble that triggered the financial crisis in 2008. We claim that this omission may have harmful consequences. Should interest rates close to zero persistently decrease natural interest rates that would mean a fall in TFP growth and more limited central bank's capacity to influence aggregated demand and price dynamics. We explain that interest rates close to zero may persistently reduce the natural interest rate because in the economy, requiring post-crisis restructuring, they impede the process of restructuring...

A Study of Income Stability in the Czech Republic by Finite Mixtures

Jitka Bartošová, Nicholas T. Longford

Prague Economic Papers 2014, 23(3):330-348 | DOI: 10.18267/j.pep.487  

Income, expenditure and similar variables in monetary units tend to have distributions similar to log-normal. Description of such variables after logarithmic transformation by the normal model is often not accurate enough, especially for multivariate data. Deviations of their empirical distributions from the theoretical lognormal distribution often require more sophisticated analysis. Mixtures represent a very flexible way of reconstructing complex distributions with irregular features and are suitable for detailed modelling. Multivariate mixture models are applied to the Czech longitudinal survey of household income in the European Union Statistics...

On Sums of Claims and their Applications in Analysis of Pension Funds and Insurance Products

Rastislav Potocký, Helmut Waldl, Milan Stehlík

Prague Economic Papers 2014, 23(3):349-370 | DOI: 10.18267/j.pep.488  

The problem that assets of a fund are not sufficient to cover its liabilities is of extreme importance both for its members as well as for fund managers. We show that this problem can be solved via total claims distributions and give answers to the following questions: How much money will be needed in the first pillar in order to satisfy the requirements of pensioners in a time horizon and which groups of working people should join also the second pillar because their benefits from it will be greater than those from the first pillar? Though the paper concentrates primarily on the situation with Slovakian pension funds we believe that our findings are...

Variability of Dynamic Correlation - The Evidence of Sector-Specific Shocks in V4 Countries

Jitka Poměnková, Svatopluk Kapounek, Roman Maršálek

Prague Economic Papers 2014, 23(3):371-387 | DOI: 10.18267/j.pep.489  

We focus on changes in dynamic correlation during the recent financial crisis. The results show different responses to this symmetric shock in V4 countries. We discuss possible specialization if the dynamic correlation increases only at certain of the frequencies. Especially, in case of the Czech Republic where the variability of dynamic correlation in business cycle frequencies increased in relation to the euro area, whereas decreased in relation to Germany. Consequently, we point out to the limitations of a correlation and concordance index as common indicators of business cycle synchronization in time domain.

Kuznets Inverted U-Curve Hypothesis Examined on Up-To Date Observations for 145 Countries

Oksana Melikhova, Jakub Čížek

Prague Economic Papers 2014, 23(3):388-410 | DOI: 10.18267/j.pep.490  

The Kuznets hypothesis of inverted U-curve dependence of the income inequality on the absolute value of the average income is still an unresolved issue despite the growing number of theoretical and empirical research on this topic. This paper analyzes the historical data on the average income and the income inequality for the period 1979-2009 collected for 145 countries. We found that the income inequality is influenced predominantly by governmental policy on subsidies and social transfers. Different amount of subsidies and social transfers across various countries makes the data biased. The inverted U-curve was found in countries with low amount of...