Daniel Stavárek

Efficiency and Profitability in the Banking Sector

Efficiency and profitability of banks and other financial institutions are very frequently discussed topics in economic literature. Harker and Zenios (2000) give a comprehensive and excellent analysis of the performance of financial institutions. Berger and Humphrey (1997) likewise surveyed 130 studies that apply frontier efficiency analysis to financial institutions in 21 countries. They report that the majority of these studies are confined to the US banking sector, and draw attention to the need for further research in this area outside the USA. This chapter aims to do precisely that.

Stock Prices and Exchange Rates in the EU and the United States: Evidence on Their Mutual Interactions

This paper investigates the nature of the causal relationship between stock prices and effective exchange rates in four old EU-member countries (Austria, France, Germany, and the UK), four new EU-member countries (Czech Republic, Hungary, Poland, and Slovakia) and in the USA. Both the long-run and short-run causalities between these variables are explored using monthly data. The paper also tries to answer the question whether the linkages between analyzed economic variables are of the similar intensity and direction in the old and new part of the EU and how has been the relationship changing over the analyzed period. The results show much stronger causality in countries with developed capital and foreign exchange markets (old EU-member countries and the USA) than in the new-comes. Evidence also suggests more powerful long-run as well as short-run causal relations in the period 1993-2003 than during 1970-1992. Causalities seem to be predominantly unidirectional with a direction running from stock prices to exchange rates. Finally, we also detected much stronger relations applying real effective exchange rate than nominal effective exchange rate.

Comparative Analysis of the Exchange Market Pressure in Central European Countries with the Eurozone Membership Perspective

This paper estimates the exchange market pressure (EMP) in four Central European countries (Czech Republic, Hungary, Poland, Slovakia) during the period 1993-2006. Therefore, it is one of very few studies focused on this region and the very first paper applying concurrently model-dependent as well as model-independent approach to the EMP estimation on these countries. The results obtained suggest that the approaches are not compatible and lead to absolutely inconsistent findings. They often differ in both identification of principal development trends and estimated magnitude and direction of the pressure. Therefore, any general conclusion on those issues is hard to draw. The paper provides evidence that a shift in the exchange rate regime towards the quasi-fixed ERM II should not lead to increasing EMP. However, it is highly probable that some episodes of the excessive EMP will make the fulfillment of the exchange rate stability criterion more difficult in all countries analyzed unless the criterion will have eased.

Cyclical Relationship Between Exchange Rates and Macro-Fundamentals in Central And Eastern Europe

Abstract We present empirical evidence on the business cycle relationship between nominal and real effective exchange rate, real GDP, consumption, investment, export, import and general government debt for a group of ten countries from the Central and Eastern Europe. We apply cross-correlation on cyclically filtered and seasonally adjusted quarterly time series over the period 1998-2010. The results are mixed in intensity, direction and cyclicality but show generally weak correlation between exchange rates and fundamentals. Sufficiently high coefficients are found only for government debt and import. We also apply simple regressions to relate the correlation to openness and welfare of the economy. The correlation between exchange rates and macroeconomic aggregates tends to be more pronounced in less open and relatively poorer countries.

Comparison of Exchange Market Pressure Across the New Part of the European Union

In this paper, we choose the correct model specification for eight European Union new member states (NMS) to estimate the exchange market pressure (EMP) for the period 1995-2009. The results suggest that the growth of domestic credit and the money multiplier had a significantly positive effect on EMP. Furthermore, EMP in many NMS was determined by foreign disturbances, namely, the eurozones money supply, foreign capital inflow, and interest rate differential. EMP in most NMS with a flexible exchange rate regime was primarily absorbed by changes in international reserves. Along with fundamentally stable EMP development in recent years, this forms a solid basis for potential fulfillment of the exchange rate stability convergence criterion.

Exchange rate volatility and the asymmetric fluctuation band on the way to the Eurozone

It is highly probable that the fulfillment of the exchange rate stability convergence criterion (ERSC) in the European Union (EU) New Member States (NMS) will be evaluated within the asymmetric fluctuation bank around the central parity. Obviously, there is a necessity for analysis of the asymmetric effects in the NMS and candidate countries exchange rate volatility. In this article, the TARCH model extended by the concept of implicit target exchange rate is applied on daily data from seven NMS and candidate countries. The results suggest that symptoms of asymmetry were found in volatility of almost all exchange rates while some pose a potential threat to fulfillment of the criterion. By contrast, the most positive results were revealed in Slovakia where the increase in the exchange rate volatility is driven by the appreciation of the national currency and the appreciation-side deviation from the target exchange rate. Such a finding is consistent with the asymmetric fluctuation band which allows substantially larger deviations on the appreciation side.

The Relationship Between Stock Market Development and Macroeconomic Fundamentals in the Visegrad Group

Abstract This study examines the effect of specific macroeconomic factors on the stock prices of selected financial sector companies listed on the Central European Exchanges (Budapest Stock Exchange, Prague Stock Exchange, Bratislava Stock Exchange, or Warsaw Stock Exchange). We investigate the nature of the causal relationships between macroeconomic factors and stock prices. The long‑term causality, tested using the Johansen cointegration test, and the short‑run dynamics between the variables, examined using the VECM model, are explored using quarterly data from the 2005-2014 period. The short‑term causality shows the possibility of time series fluctuations; however a steady state should be achieved in the long‑term. In general, we confirmed that macroeconomic fundamentals had a negative impact on stock prices. The interest rate, which also has a negative impact, is the most prominent predictor of the long‑run developments. We also found very rare examples of macroeconomic variables that explain changes in stock prices within the VECM framework.

Effective Exchange Rates in Central and Eastern European Countries: Cyclicality and Relationship with Macroeconomic Fundamentals

Abstract This paper examines the evolution of effective exchange rates in nine Central and Eastern European countries in terms of development trends, volatility and cyclicality. Consequently, it provides direct empirical evidence on the nature of the relationship between effective exchange rates and selected macroeconomic fundamentals, addressing a key precondition of numerous exchange rate determination models and theories that attempt to explain the role of exchange rates in the economy. The results suggest that flexible exchange rate arrangements are reflected in both nominal and real effective exchange rates having higher volatility and variability. Furthermore, the results provide mixed evidence in terms of intensity, direction and cyclicality, but show a weak correlation between exchange rates and fundamentals. Sufficiently high coefficients are found only for money supply. Consequently, using fundamentals for the determination of exchange rates and using the exchange rate to explain economic development may be of limited use for the countries analyzed.

Influence of the Czech Banks on their Foreign Owner's Interest Margin

Abstract The present paper investigates functional relationship between the parent companies and their subsidiaries, the Czech banks. The aim of this study is to examine if there are relationships between net interest margin of foreign parent companies and our selected variables of their Czech subsidiaries. We are using GMM regression with annual data in panels from the period 2005 – 2010. We confirm that there are some significant relationships between net interest income of foreign parents and the both amount of gross loans and total deposits of their subsidiaries. In addition, we show the ways how it is possible for parent«s to get some cash flows from the Czech banking sector. We make also monetary policy implications for the Czech National Bank, then.

The Financial and Banking Sectors in Transition Countries

Ideas and scenarios for economic reforms led to the transformation of a centrally planned economy into a market economy in Central European countries (CEC). Privatization, liberalization of prices, liberalization of foreign trade, and liberalization of capital movement were among the main pillars of transformation. The fulfilment of the transformation task was impossible without substantial changes in the banking sector. This chapter gives a brief overview of the development of the financial and banking sectors in the Czech Republic, the Slovak Republic, Hungary and Poland. In the first part, the key features of the financial sectors in these transition countries are identified. Then, by applying indicators of capital market and bank development, a comparison of the financial sector’s structure will be made. The third part will deal with the restructuring of the banking sector in transition economies.