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Economic Change and Restructuring

, Volume 45, Issue 3, pp 135–155 | Cite as

Monetary transmission and the financial sector in the Czech Republic

  • Tomáš Havránek
  • Roman HorváthEmail author
  • Jakub Matějů
Article

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, even though it strengthens during the 2008–2009 crisis. The results give some support for the risk-taking channel of monetary policy, as the level of the monetary policy rate is positively associated with the loan loss provision rate of commercial banks. Finally, a more stable financial system is found to contribute to faster economic growth.

Keywords

Macroeconomic and financial linkages Vector autoregressions Forecasting 

JEL Classification

E44 E58 E47 G17 

Notes

Acknowledgments

We thank two anonymous referees, Jan Brůha, Zuzana Fungáčová, Jan Hanousek, and seminar participants at the Czech National Bank and the 11th International Conference “Financial and Monetary Stability in Emerging Countries” (Bucharest, Romania). This research was supported by Czech National Bank Research Project B3/10. The financial support from the Czech Science Foundation research grant no. P402/11/1487 is gratefully acknowledged.

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Copyright information

© Springer Science+Business Media, LLC. 2011

Authors and Affiliations

  • Tomáš Havránek
    • 1
  • Roman Horváth
    • 2
    Email author
  • Jakub Matějů
    • 3
  1. 1.Czech National Bank and Institute of Economic StudiesCharles UniversityPragueCzech Republic
  2. 2.Institute of Economic StudiesCharles UniversityPragueCzech Republic
  3. 3.CERGE-EI and Czech National BankPragueCzech Republic

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