Julius Horvath

Stability of Monetary Unions: Lessons from the Break-up of Czechoslovakia

In 1993, Czechoslovakia experienced a two-step break-up. On January 1, the country disintegrated as a political union, while preserving an economic and monetary union. Then, the Czech-Slovak monetary union collapsed on February 8. This paper analyzes the economic background of the two break-ups from the perspective of the optimum currency area literature. The main finding is that the Czech and Slovak economies were vulnerable to asymmetric economic shocks, such as those induced by the economic transition. In particular, the stability of Czechoslovakia was undermined by low correlation of permanent output shocks, low labor mobility and higher concentration of heavy and military industries in Slovakia.

Optimum Currency Area Theory: A Selective Review

The first part of this paper is a review of significant papers in the vast literature on optimum currency area (OCA) theory. The author focuses on the main classical contributions, then considers modern treatment of OCA theory. The second part considers empirical literature on the types of geographical areas that might constitute optimum currency areas, particularly with respect to asymmetry and symmetry of shocks.

Price Variability and the Speed of Adjustment to the Law of One Price: Evidence from Slovakia

This paper uses a large panel data set of monthly frequency final good and service prices in thirty-eight Slovak districts over a five-year period to study price variability and the working of the law of one price. We concentrate on three issues. First, using simple statistical tools, we investigate the range of price differences across Slovak districts. Second, we measure relative price variability across cities and across products. The variability of relative prices in the same district appears to be higher than the variability of prices of the same good across different districts. We identify the factors likely to be responsible for this fact. Third, using benchmarks we investigate the speed of convergence to the absolute law of one price. While we find evidence for absolute convergence, the speed is lower than that found in US cities. The speed of convergence to the relative law of one price is considerably higher.

On the European monetary system: the spillover effects of German shocks and disinflation

We analyze the disinflationary experience between 1979-1993 for two traditionally inflationary countries of the European Monetary System: France and Italy. For each country, a vector autoregressive model is estimated. Shocks in the model combine domestic and foreign sources. The latter capture the world oil price shocks as well as nominal and real shocks originating in Germany. Under investigation is the hypothesis that shocks originating in Germany have a spillover disinflationary effect in France and Italy. The empirical evidence provides support to the validity of this hypothesis. Furthermore, German shocks account for an important share of the total price variance in France and Italy. These results indicate that the interaction between countries of the European Monetary System has contributed to the success of the disinflationary experiences of the eighties. The evidence sheds, therefore, some light on potential benefits that may be further realized as countries of the European Monetary System move towards their objective of achieving a single currency under a unified monetary system.

The May 1997 Currency Crisis in the Czech Republic

This article discusses some issues related to the Czech currency crisis in May 1997. First, it evaluates the role of different factors which were linked with the crisis. These include the role of monetary and fiscal policy, current account deficit, real exchange rate appreciation, slower growth, political instability as well as possible contagious effects. The second part describes how the crisis evolved, what defence was used by the central bank, and how the pegged regime was abandoned and replaced by the managed float.

Fiscal Decentralization and Public debt in the European Union

This paper analyses the relationship between fiscal decentralization and the level of the public debt in the twenty seven member countries of the European Union. Our panel data analysis points to the importance of size as fiscal decentralization reduces public debt in large and small countries, but not in medium - size countries. In addition, our results show that the number of government levels and average size of the lowest government unit is insignificant with respect to the public debt in these countries.

National identity and money: Czech and Slovak Lands 1918–2008

An expanding literature on money and identity is built around the assumption that political elites deliberately use currency design to foster national identities. However, the empirical evidence in favor of this assumption has been fragmentary. Drawing on detailed primary sources we demonstrate nationalist intentions of political elites involved in currency design. We also examine how political elites use banknotes as official pronouncements on who is and who is not part of the nation and what the official attitude toward foreigners is. By tracing changes in the inclusive and exclusive messages directed at an intra-state or international audience we document that there is no connection between ingroup (national) love and outgroup (foreigners, minorities, opposition) hate. The amount of exclusive messages to outgroups culminated in conditions of perceived threat when political leaders tried to mobilize pre-existing identities to secure or maintain political power. In contrast, the officials deliberately tried to broaden ingroup boundaries in order to build international communities. Finally, we document that in the case of limited support for the new conception of identity, officials tried to depict the old and the new identity as complementary, embedding the new identity in existing discourses.

European Sovereign Debt Crisis and the Euro

The recent crisis, which originated in the United States, resulted in a chain of events in the world economy. One of them is the sovereign debt crisis in Europe. At the beginning of 2013 this crisis still represents significant risk to the future development of European and global economies.

The Czech Currency Crisis of 1997

The Czech currency crisis in May 1997 was far less spectacular the Russian crisis in the summer of 1998 or the crisis in South-East Asia in 1997. Nevertheless, it was the first typical currency crisis in the group of more advanced transition economies.

Sovereign Debt Crisis: Euro-Reality

Abstract In the domestic credit market creditor and debtor rights are clearly defined. In contrast, sovereign debt repayment is largely contingent on the debtor government’s willingness to repay as enforcement of contracts at the international level is limited. In this chapter we explore different sources of sovereign debt crises as opportunistic and myopic behavior by debtor nations, over-consumption of imported goods, credit temptation by lenders eager to allocate savings surpluses, and unexpected consequences of initially seen appropriate policies. We explore how these factors have played out in the Euro-debt crisis and outline a framework for creditor responsibility to complement debtor self-restraint.