Credit Spreads and the Links between the Financial and Real Sectors in a Small Open Economy: The Case of the Czech Republic
Journal Title: Finance a uver - Year 2016, Vol 66, Issue 4
Abstract
Various approaches have been employed to explore the possibility of non-linear feedback between the real and financial sectors. The present study focuses on the impact of real shocks on selected financial sector indicators and the responses of the real economy to impulses emanating from the financial sector. We estimate a threshold Bayesian VAR with block restrictions and the credit spread as a threshold variable using the example of the Czech Republic. We find that while there is no evidence of asymmetric effects across positive and negative shocks, the responses of the financial sector to real shocks tend to differ below and above the credit spread threshold. Responses in the opposite direction (i.e. from the financial sector to the real economy) are pro-cyclical and similar irrespective of regime. A positive shock to credit and a negative shock to the NPL (non-performing loans) increase industrial production over the entire time horizon. The direct impact of foreign factors on lending seems to be rather limited.
Authors and Affiliations
Tomas Konecny, Oxana Babecka-Kucharcukova
Does the Amount and Time of Recapitalization Affect the Profitability of Commercial Banks?
In this paper we study the effects of bank recapitalization on profitability during the recent global financial crisis. We used data from 91 systemically important banks in the EU and the US. We found that a higher amoun...
Which Came First, the Chicken or the Egg? Banks and Firms on Local Banking Markets
This study investigates the interactions between the financial health of cooperative banks and the performance of small and medium-sized enterprises (SMEs). Using a unique dataset on local banking markets in Poland, we e...
The Value Added Tax Incidence – the Case of the Book Market in CEE Countries
Conducting effective economic policy requires understanding of how taxes are shifted. The value added tax rates on books in the Czech Republic, Hungary, Poland and Slovakia in 2003 – 2012 differed much and changed severa...
US Dollar Carry Trades in the Era of “Cheap Money”
In this paper, we employ a unique dataset of actual US dollar (USD) forward positions against a number of currencies taken by so-called commodity trading advisors (CTAs). We investigate the extent to which these position...
Fiscal Councils and Economic Volatility
We evaluate proposals for an independent fiscal authority put forward as a solution to excessive public spending. Our main conclusion is that shifting the responsibility to set broad measures of fiscal policy from the ha...