CNB Research News

Macro-Prudential Policies to Contain the Effect of Structural Risks on Financial Downturns

Journal of Policy Modeling, 2023, Vol. 45, No. 6, pp. 1204–1222

Holding the Economy by the Tail: Analysis of Short- and Long-Run Macroeconomic Risks

Empirical Economics, 2023, forthcoming

Distributional Effects of Monetary Policy Shocks on Wage and Hours Worked: Evidence from the Czech Labor Market

This study examines the heterogeneity in the effects of monetary policy shocks on the distribution of wages and hours worked using Czech labour market contract-level data. Utilising an identification approach based on the changes of interest rate futures around monetary policy meetings, we find that low-wage groups are more strongly affected than high-wage groups. Monetary policy shocks exhibit a stronger impact in the manufacturing sector. Further analysis reveals that low-educated and young workers bear a disproportionately larger impact due to their higher representation in low-wage groups, shedding light on the varied effects of monetary policy across demographic groups.

Modelling Risk-Weighted Assets: Looking Beyond Stress Tests

We propose an improved methodology for modelling potential scenario paths of banks’ risk-weighted assets, which drive the denominator of capital adequacy ratios. Our approach centres on modelling the internal risk structure of bank portfolios and thus aims to provide more accurate estimations than the common portfolio level approaches used in top-down stress testing frameworks. We use our approach to estimate the potential increase in risk weights due to a cyclical deterioration in credit parameters and the corresponding setup of the countercyclical capital buffer for the Czech banking sector.

How Does Interest Rate Pass-Through Change Over Time? Rolling Windows and the Role of the Credit Risk Premium in the Pricing of Czech Loans

Examining interest rate pass-through in the Czech Republic (2004-2022), we analyze the speed and completeness of transmitting market interest rate changes to non-financial company loans and housing loans. Utilising a rolling window approach, we observe a strong, though incomplete, long-term transmission of the 5-year interest rate swap rate to housing loan rates. For loans to non-financial companies, changes in the 3M PRIBOR are passed on almost completely and promptly, while a 1 percentage point reduction in the output gap corresponds to an approximately 0.1 percentage point increase in the risk premium for corporate loan interest rates. 

Does Shareholder Activism Have a Long-Lasting Impact on Company Value? A Meta-Analysis

This study presents the first meta-analysis of the literature on shareholder activism and its effect on firm value in the long run. The study shows that the conclusion as to whether activism is beneficial depends on the benchmark with which the targeted firm is compared. Second, the estimates are also overstated due to publication bias. Third, the value added by activism depends on the country-specific regulatory framework.

A Sparse Kalman Filter: A Non-Recursive Approach

We propose an algorithm for sparse estimation of unobserved states and shocks in linear state-space models, addressing issues of non-zero estimates in the conventional Kalman filter due to noisy data or ill-conditioning. Applied to economic models such as DSGE models, VARs, time-varying VARs, and dynamic factor models, our approach introduces sparsity through an elastic-net penalty, enhancing statistical efficiency. The algorithm can be adapted for non-convex penalties and robust outlier-resistant estimates.

Ace in Hand: The Value of Card Data in the Game of Nowcasting

This study demonstrates the effectiveness of using Mastercard card payments data for nowcasting Czech retail sales and services. The data closely mirrors the official retail sales figures published by the Czech Statistical Office over a month later. It is shown to be useful not only for backcasting after month-end but also for providing insights three weeks into the current month, significantly ahead of official data. The method's usefulness is highlighted by accurately predicting the drastic decline in retail sales during the outbreak of COVID-19 in Czechia in March 2020, four weeks before the official data was released.

What Drives Sectoral Differences in Currency Derivative Usage in a Small Open Economy? Evidence from Supervisory Data

Using a sample of nearly 980,000 new derivative transactions from about 1,700 unique institutions, we explore sectoral differences in currency derivatives usage in the Czech financial sector from 2020 to 2022. We find that larger financial institutions, institutions that are part of complex financial groups, and institutions with higher foreign exposure are more likely to engage in currency derivative transactions. Contrary to other studies, we find that financially stable institutions use currency derivatives more frequently, reflecting the long-term stability of the Czech financial system.

Long-Term Impacts of the COVID-19 Pandemic on Working from Home and Online Shopping: Evidence from a Czech Panel Survey

The COVID-19 pandemic prompted a significant shift in behaviour, with increased online activities such as remote work and shopping. Using panel data collected from Czech adults during the five waves of the pandemic, we find this shift to be semi-permanent, persisting beyond the lifting of anti-pandemic measures. Working from home is influenced by job type, industry, and education, while online shopping is driven by age and education. The pandemic accelerated the adoption of online activities, particularly among the younger and more educated demographic in the Czech population.

How Do Climate Policies Affect Holdings of Green and Brown Firms’ Securities?

We study how climate policies and significant events affect holdings of securities issued by low-carbon (green) and high-carbon (brown) firms. Using security-level data, we show that the financial sector increased its holdings of green firms’ securities and reduced its holdings of brown firms’ securities following the Paris Climate Agreement and the 2019 UN Climate Action Summit. The COVID-19 pandemic had a similar effect, highlighting the role of the carbon risk premium. Conversely, the private non-financial sector increased its holdings of brown firms’ securities, indicating a shift of transition risks toward this sector.

Unemployment in the Euro Area: Why is it so Low and When Will it Start to Rise?

The economic situation in the euro area has not exactly been dazzling recently. Output is stagnating - production is being dampened by weakening external demand, and investment is being adversely affected by tightened monetary policy. This article maps the causes of the current record-low unemployment in the euro area from various perspectives, while noting the emerging signs of a cooling of the labour market, which is now at a turning point and undergoing gradual structural changes.

Is International Trade Fragmenting? Case Study for EU Member States

This article examines how the concentration of international trade in goods has evolved for EU Member States over the last quarter of a century in terms of its territorial breakdown. Using the Herfindahl-Hirschman index, the article shows that EU Member States recently increased their share of trade with countries with a similar geopolitical position, which may be indicative of a creeping fragmentation of international trade.

Who Will Pay the COVID Debt?

From the perspective of public finances, the COVID pandemic is reminiscent of a period of war. This article focuses on the sharp and temporary increase in government spending to fight the COVID-19 pandemic. The article shows that most of the new debt has already been offset by inflation and bond revaluation, but that the final distribution of the COVID-19 burden will depend on developments in the post-pandemic period.

Monetary Policy of the Chinese Central Bank

China's monetary policy, integral to its planned economy, is navigating a delicate balance between supporting the domestic economy and managing the challenges arising from global economic dynamics. Concerned with the stability of the renminbi exchange rate amidst international capital flows, China's central bank is grappling with the intricacies of liberalization and control. This article evaluates the evolution of China's monetary policy, drawing comparisons with advanced market economies to highlight its unique interplay between economic openness and regulatory measures.