Abstract

In this paper, we 1) examine the interactions of financial variables and the macroeconomy within the block-restriction vector autoregression model and 2) evaluate to what extent the financial variables improve the forecasts of GDP growth and inflation. For this reason, various financial variables are examined, including those unexplored in previous literature, such as the share of liquid assets in the banking industry and the loan loss provision rate. Our results suggest that financial variables have a systematic and statistically significant effect on macroeconomic fluctuations. In terms of forecast evaluation, financial variables in general seem to improve the forecast of macroeconomic variables, but the predictive performance of individual financial variables varies over time, in particular during the 2008-2009 crisis.
Relative mean squared error of the Czech GDP forecast at one to four quarters ahead, one line per financial variable; the Prague stock index stays below one throughout while credit rises from 1.7 to about 2.4
Fig: Does a financial variable improve the forecast of GDP? Below one is better than the purely macroeconomic model.

The full text on this site is Czech National Bank Working Paper 6/2010, the openly available version, which carries the earlier title Do Financial Variables Help Predict Macroeconomic Environment? The Case of the Czech Republic. The article was published in Economic Change and Restructuring in 2012.

Reference: Tomas Havranek, Roman Horvath, Jakub Mateju (2012), "Monetary transmission and the financial sector in the Czech Republic." Economic Change and Restructuring 45(3): 135-155. doi.org/10.1007/s10644-011-9106-z

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How to cite

Tomas Havranek, Roman Horvath, Jakub Mateju (2012), "Monetary transmission and the financial sector in the Czech Republic." Economic Change and Restructuring 45(3): 135-155. doi.org/10.1007/s10644-011-9106-z

BibTeX 
@article{havranek2012transmission,
  author  = {Tomas Havranek and Roman Horvath and Jakub Mateju},
  title   = {Monetary transmission and the financial sector in the Czech Republic},
  journal = {Economic Change and Restructuring},
  volume  = {45},
  number  = {3},
  pages   = {135--155},
  year    = {2012},
  doi     = {10.1007/s10644-011-9106-z},
}