Martin Melecky

Macroprudential Stress-Testing Practices of Central Banks in Central and South Eastern Europe: An Overview and Challenges Ahead

This paper reviews and compares stress-testing practices of central banks in Central and Southeastern Europe (CSEECBs) and outlines challenges in the area of stress testing going forward. The authors, focusing their comparison on CSEECBs, construct the baseline and stress scenarios, map macroeconomic scenarios and microeconomic factors to risk factors, calculate risk exposures to different risk indicators, and estimate outcome indicators to inform macroprudential policy. The main challenges going forward concern data reliability, consideration of quantitative microprudential indicators, incorporation of feedback effects in stress tests, institutionalization of macroprudential policy responses to alarming stress-test results, and information exchange for better cross-border supervision.

Financial Sector Policy in Practice: Benchmarking Financial Sector Strategies Around the World

ABSTRACT Policy makers use financial sector strategies to formulate a holistic policy for the national financial system. This article examines and rates financial sector strategies around the world on how well they formulate development targets, arrangements for systemic risk management, and implementing plans. The strategies are also rated on whether they consider policy trade-offs between financial development and systemic risk management. The rated strategies are then benchmarked against a range of country characteristics. The analysis finds that the scope and quality of national strategies for the financial sector are systematically influenced by several country characteristics. Interestingly, policy trade-offs, particularly between financial development and systemic risk management, are not adequately considered in the strategies.

Comparing constraints to economic stabilization in Macedonia and Slovakia: macroestimates with micronarratives

This article re-emphasizes the link from structural policies to enhanced macroeconomic stabilization using a small structural model estimated on quarterly data for Macedonia and Slovakia over 1995–2007. The success of macroeconomic stabilization, typically in the hands of monetary policy, is not only determined by a suitable choice of the nominal anchor, which shapes the reaction function of monetary policy, but also the constraints within which the monetary policy strives to achieve its objectives. The key attributes of the constraints to macroeconomic stabilization are economic rigidities and structural shocks. By benchmarking the estimated economic rigidities and structural shocks faced by Macedonia to those faced by Slovakia, we find that Macedonia has relatively weaker transmission mechanisms of monetary policy, higher output rigidity, a lower exchange rate pass-through, and faces larger external shocks. For Macedonia, these relatively higher constraints on monetary policy together with the chosen exchange rate anchor result in higher output and inflation volatility relative to Slovakia. Hence, it appears that small open economies with stronger economic rigidities should apply monetary policy regimes that allow for more flexible adjustments in external relative prices to enhance their macroeconomic stability.

Anticipation, External Crises, and Output Growth in Emerging Market Economies

This paper examines the relative effect of anticipated and unanticipated components of external crises on growth cycles in emerging market economies. The external crises considered are currency crises and current account reversals. Unlike the negative effect of current account reversals on gross domestic product growth, which can be attributed to unsound development and existing imbalance in the domestic economy, the likely negative effect of the currency and joint crises is due to both an unsound domestic economy and unanticipated external shocks, such as contagion from other economies, owing to regional homogeneity.