Prague Economic Papers, 2018 (vol. 27), issue 5

Original contributions, Original article, Research article

The Impact of German Macroeconomic News on Emerging European Forex Markets

Michala Moravcová

Prague Economic Papers 2018, 27(5):505-521 | DOI: 10.18267/j.pep.670  

This paper analyses the impact of German macroeconomic news announcements and ECB meeting days on the conditional volatility of the Czech, Polish, and Hungarian Foreign Exchange markets as proxied by CZK/EUR, PLN/EUR, and HUF/EUR exchange rate returns over six years (2010-2015). A currency intervention period (11/2013-2015) in the Czech Republic is examined separately. EGARCH-type models with normal and Student's t-distributions are employed. The comprehensive analysis shows the following results. (i) The IFO index, Factory Orders increase and the PMI index from the Service Sector, the labour market data decrease conditional volatility of PLN/EUR....

Monetary Policy and Cyclical Systemic Risk - Friends or Foes?

£ukasz Kurowski, Pawe³ Smaga

Prague Economic Papers 2018, 27(5):522-540 | DOI: 10.18267/j.pep.667  

We explore the procyclicality of monetary policy decisions towards the financial cycle in the 1995-2015 period on a sample of seven central banks. Using the real interest rate gap and the credit-to-GDP gap, we provide evidence that monetary policy procyclicality is a material issue occurring in more than 50% of observations in expansionary phase of financial cycle. It indicates that the central bank faces conflicting objectives of price and financial stability (as proxied by cyclical systemic risk). Nevertheless, taking into consideration all financial cycle phases, complementariness between price and financial stability is more frequent than cases...

Valuation Standards for Commercial Banks in the Financial Theory and their Analysis

Milan Hrdý

Prague Economic Papers 2018, 27(5):541-553 | DOI: 10.18267/j.pep.661  

This article focuses on bank valuation standards as some recommended steps how to evaluate some concrete commercial bank by the market value. Different approaches, methods and models were analysed and the final recomendations were stated. Basic valuation approaches such as the income approach, the market-based approach and the asset-based approach used for traditional entreprises valuation are recommended also for the commercial banks valuation, but it is necessary to adjust them according to some specifics of banks. After the precise analysis it is possible to recommend the application of Market-Based Valuation or in other words Relative Valuation...

Cash Flow Sensitivities of Financial Decisions: Evidence from an Emerging Market

Aysa Ipek Erdogan

Prague Economic Papers 2018, 27(5):554-572 | DOI: 10.18267/j.pep.675  

This study investigates the sensitivity of financing, investment, and distribution decisions to changes in operating cash flow, and whether these sensitivities depend on whether or not firms are financially constrained. Using a sample of 2,650 firm-years of Turkish firms for the period 1996 to 2013, we find that an increase in the short-term cash flows is associated with an increase in cash balances, irrespective of whether or not firms are financially constrained. However, unconstrained firms hold a larger cash balance than constrained firms. Dividends are positively related to the short-term cash flows of both types of firms. Investments are not...

Have More Profitable Banks a More or a Less Risky Lending Policy? Empirical Evidence from CEE Countries

Blanka ©krabic Peric

Prague Economic Papers 2018, 27(5):573-587 | DOI: 10.18267/j.pep.666  

This paper investigates the short and long-run relationship between credit risk and two bank profitability indicators ROA and ROE in Central and Eastern European countries during the period from 2000 to 2010. Results from previous research mostly confirm the negative relationship between profitability and credit risk by considering the current or one year lagged value of profitability. Certain crisis indicates that more profitable banks before the crisis became more risky during the time of crisis. These results motivate us to upgrade the model of credit risk by including earlier values of profitability. Results indicate that two or three years are...

Determinants of Deposit Insurance Coverage

Yiming Chang, Shangmei Zhao, Haijun Yang, Jiang He, Fei Hu

Prague Economic Papers 2018, 27(5):588-605 | DOI: 10.18267/j.pep.676  

On a comprehensive duration data set covering 189 countries from 1960 to 2015, we employ a Heckman two-step selection model to investigate determinants of deposit insurance coverage. We find that macroeconomic status, bank structure and regulatory, political institution, legal system and deposit insurance design characteristics have a significant effect on deposit insurance coverage. Moreover, empirical results show that the impact factors are different between developing and developed countries, especially the design characteristics. Specifically, for developing countries, the scheme with the Foreign currency will support a higher coverage....

The Influences of Fiscal Decentralization on Economic Performance: Empirical Evidence from OECD Countries

Fuhmei Wang

Prague Economic Papers 2018, 27(5):606-618 | DOI: 10.18267/j.pep.674  

Based on OECD country experiences over the period from 1990 to 2015, this research rigorously investigates: (1) how fiscal autonomy effects economic growth; (2) whether there is an optimal level of decentralization; and (3) whether and how other factors influence economic performance in a decentralized economy. We find that revenue decentralization does not affect economic performance. The expenditure decentralization dividend in terms of an enhanced economic growth rate can be achieved only when the initial share of local government expenditure is smaller than the growth-maximizing degree through along with tax collection and trade openness.