Roman Horvath

Cross-Country Heterogeneity in Intertemporal Substitution

We collect 2,735 estimates of the elasticity of intertemporal substitution in consumption from 169 published studies that cover 104 countries during different time periods. The estimates vary substantially from country to country, even after controlling for 30 aspects of study design. Our results suggest that income and asset market participation are the most effective factors in explaining the heterogeneity: households in developing countries and countries with low stock market participation substitute a smaller fraction of consumption intertemporally in response to changes in expected asset returns. Micro-level studies that focus on sub-samples of poor households or households not participating in asset markets also find systematically smaller values of the elasticity.

Stock Market Comovements in Central Europe: Evidence from Asymmetric DCC Model

We examine time-varying stock market comovements in Central Europe employing the asymmetric dynamic conditional correlation multivariate GARCH model. Using daily data from 2001 to 2011, we find that the correlations among stock markets in Central Europe and between Central Europe vis–a–vis the euro area are strong. They increased over time, especially after the EU entry and remained largely at these levels during financial crisis. The stock markets exhibit asymmetry in the conditional variances and in the conditional correlations, to a certain extent, too, pointing to an importance of applying sufficiently flexible econometric framework. The conditional variances and correlations are positively related suggesting that the diversification benefits decrease disproportionally during volatile periods.

International Stock market integration: Central and South Eastern Europe compared

We examine the international stock market comovements between Western Europe vis-a-vis Central (Czech Republic, Hungary and Poland) and South Eastern Europe (Croatia, Macedonia and Serbia) using multivariate GARCH models in the period 2006–2011. Comparing these two groups, we find that the degree of comovements is much higher for Central Europe. The correlation of South Eastern European stock markets with developed markets is essentially zero. An exemption to this regularity is Croatia, with its stock market displaying a greater degree of integration toward Western Europe recently, but still below the levels typical for Central Europe. All stock markets fall strongly at the beginning of the global financial crisis and we do not find that the crisis altered the degree of stock market integration between these groups of countries.

Financial development and economic growth: A meta-analysis

We analyze 1334 estimates from 67 studies that examine the effect of financial development on economic growth. Taken together, the studies imply a positive and statistically significant effect, but the individual estimates vary widely. We find that both research design and heterogeneity in the underlying effect play a role in explaining the differences in results. Studies that do not address endogeneity tend to overstate the effect of finance on growth. While the effect seems to be weaker in less developed countries, the effect decreases worldwide after the 1980s. Our results also suggest that stock markets support faster economic growth than other financial intermediaries.

How to Solve the Price Puzzle? A Meta-Analysis

The short-run increase in prices following an unexpected tightening of monetary policy represents a frequently reported puzzle. Yet the puzzle is easy to explain away when all published models are quantitatively reviewed. We collect and examine about 1,000 point estimates of impulse responses from 70 articles using vector autoregressive models to study monetary transmission in various countries. We find some evidence of publication selection against the price puzzle in the literature, but our results also suggest that the reported puzzle is mostly caused by model misspecifications. Finally, the long-run response of prices to monetary policy shocks depends on the characteristics of the economy.

The Effects of Monetary Policy in the Czech Republic: An Empirical Study

In this paper, we examine the effects of Czech monetary policy on the economy within the VAR, structural VAR, and factor-augmented VAR frameworks. We document a wellfunctioning transmission mechanism similar to the euro area countries, especially in terms of persistence of monetary policy shocks. Subject to various sensitivity tests, we find that a contractionary monetary policy shock has a negative effect on the degree of economic activity and the price level, both with a peak response after one year or so.Regarding prices at the sectoral level, tradables adjust faster than non-tradables, which is in line with microeconomic evidence on price stickiness. There is no price puzzle, as our data come from a single monetary policy regime. There is a rationale in using the realtime output gap instead of current GDP growth, as using the former results in much more precise estimates. The results indicate a rather persistent appreciation of the domestic currency after a monetary tightening, with a gradual depreciation afterwards.

How Does Monetary Policy Change? Evidence On Inflation-Targeting Countries

We examine the evolution of monetary policy rules in a group of inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom), applying a moment-based estimator in a time-varying parameter model with endogenous regressors. Using this novel flexible framework, our main findings are threefold. First, monetary policy rules change gradually, pointing to the importance of applying a time-varying estimation framework. Second, the interest rate smoothing parameter is much lower than typically reported by previous time-invariant estimates of policy rules. External factors matter for all countries, although the importance of the exchange rate diminishes after the adoption of inflation targeting. Third, the response of interest rates to inflation is particularly strong during periods when central bankers want to break a record of high inflation, such as in the UK or Australia at the beginning of the 1980s. Contrary to common wisdom, the response becomes less aggressive after the adoption of inflation targeting, suggesting a positive anchoring effect of this regime on inflation expectations. This result is supported by our finding that inflation persistence as well as the policy neutral rate typically decreased after the adoption of inflation targeting.

How Important Are Foreign Shocks in Small Open Economy? The Case of Slovakia

In this paper, we provide evidence on the nature and the relative importance of domestic and foreign shocks in Slovak economy based on block-restriction vector autoregression model in 1999-2007. We document well-functioning monetary transmission mechanism in Slovakia. Subject to various sensitivity checks, we find that contractionary monetary policy shock has a temporary negative effect on the degree of economic activity and price level. We find that using output gap instead of GDP alleviates the price puzzle. In general, prices are driven mainly by foreign factors and the European Central Bank monetary policy shock on Slovak prices is more powerful than that of the National Bank of Slovakia. Slovak central bank interest rate policy seems to follow the ECB???s interest rates. On the other hand, spectacular Slovak economic growth is primarily driven by domestic factors suggesting the positive role of recently undertaken Slovak economic reforms.

Exchange rate variability, pressures and optimum currency area criteria: some empirical evidence from the 1990s

This paper estimates the medium-term determinants of the bilateral exchange rate variability and exchange rate pressures for 20 developed countries in the 1990s. The results suggest that optimum currency area criteria explain the dynamics of bilateral exchange rate variability and pressures, to a large extent.

Central Bank Communication and Exchange Rate Volatility: A GARCH Analysis

We examine the effects of the Czech National Bank communication, macroeconomic news and interest rate differential on exchange rate volatility using generalized autoregressive conditional heteroscedasticity model. Our results suggest that central bank communication has a calming effect on exchange rate volatility. The timing of central bank communication seems to matter, too, as financial markets respond more to the communication before the policy meetings than after them. Next, macroeconomic news releases are found to reduce exchange rate volatility, while interest rate differential seems to increase it.