Structural changes in the Czech, Slovak and euro area economies during the Great Recession

Open access

Abstract

The goal of this paper is to identify and compare the most important changes in the structure of the Czech economy, as a small open economy with independent monetary policy, the Slovak economy, as a small open economy that entered monetary union, and the economy of the euro area, which has a common monetary policy, during the turbulent period of the Great Recession, the subsequent anaemic recovery and recent disinflationary period. Structural changes are identified with the help of nonlinear dynamic stochastic models of general equilibrium with time-varying parameters. The model parameters are estimated using Bayesian methods and a nonlinear particle filter. The results confirm the similarity of the Czech and Slovak economies and show that in certain respects the structure of the Czech economy might be closer to that of the euro area than that of Slovakia. The time-varying estimates reveal many similarities between the parameter changes in the Czech economy and those in the euro area. In Slovakia, the situation during the Great Recession was dominated by the country’s adoption of the euro, which caused large deviations in its Calvo parameters.

ADJEMIAN, S., BASTANI, H., JUILLARD, M., KARAMÉ, F., MIHOUBI, F., PERENDIA, G., PFEIFER, J., RATTO, M. and VILLEMOT, S. (2011). Dynare: Reference Manual, Version 4, Dynare Working Papers, 1, CEPREMAP.

BERNANKE, B. S., GERTLER, M. and GILCHRIST, S. (1999). The Financial Accelerator in a Quantitative Business Cycle Framework, in Taylor, J. B. and Woodford, M. (eds.), Handbook of Macroeconomics, vol. 1, Elsevier, Amsterdam, 1341-1393.

BROOKS, S. P. and GELMAN, A. (1998). General methods for monitoring convergence of iterative simulations, Journal of computational and graphical statistics, 7(4), 434-455.

ČAPEK, J. (2012). Comparison of recursive parameter estimation and non-linear filtration, in Ramík, J. and Stavárek, D. (eds.), Mathematical Methods in Economics 2012. Karviná, Silesian University, School of Business Administration, 85-90.

CHRISTIANO, L. J., TRABANDT, M. and WALENTIN, K. (2011). Introducing Financial Frictions and Unemployment into a Small Open Economy Model, Journal of Economic Dynamics and Control, 35 (12): 1999-2041. DOI: 10.1016/j.jedc.2011.09.005

European Central Bank (2000). EU Banks’ Margins and Credit Standards, December 2000.

European Central Bank (2012). Corporate Indebtedness in the Euro Area, ECB Monthly Bulletin, 2012 (February): 87-103.

HAUG, A. J. (2005). A Tutorial on Bayesian Estimation and Tracking Techniques Applicable to Nonlinear and Non-Gaussian Processes, Mitre Technical Report, MITRE corporation, http://www.mitre.org/sites/default/files/pdf/05_0211.pdf.

JUSTINIANO, A. and PRESTON, B. (2006). Monetary Policy and Uncertainty in an Empirical Small Open Economy Model, Journal of Applied Econometrics, 25 (1): 93-128. DOI: 10.1002/jae.1153

NĚMEC, D. (2013). Investigating Differences Between the Czech and Slovak Labour Market Using a Small DSGE Model with Search and Matching Frictions, The Czech Economic Review, 7 (1): 21-41.

RYŠÁNEK, J., TONNER, J., TVRZ, S. and VAŠÍČEK, O. (2012). Monetary policy implications of financial frictions in the Czech Republic, Czech Journal of Economics and Finance, 62 (5): 413-429.

SENAJ, M., VÝŠKRABKA, M. and ZEMAN, J. (2010). MUSE: Monetary Union and Slovak Economy Model, Ekonomický časopis, 60 (5): 435-459.

SHAARI, M. H. (2008). Analyzing Bank Negara Malaysia’s Behaviour in Formulating Monetary Policy: An Empirical Approach. [Doctoral thesis.] Canberra: College of Business and Economics, Australian National University.

TVRZ, S. (2014). Czech and Slovak economy during the Great Recession through the lens of a DSGE model, in Brezina, J. et al. (eds.), Economic Theory & Economic Reality ETER 2014. Bratislava, Economic University.

TVRZ, S. and VAŠÍČEK, O. (2014). Nonlinear DSGE model of a small open economy with time-varying parameters: Czech economy in a period of recession, in Talašová, J., Stoklasa, J. and Talášek, T. (eds.), Mathematical Methods in Economics 2014. Olomouc, Palacký University, 1068-1073.

TVRZ, S. and VAŠÍČEK, O. (2015). ‘Slovak economy in a period of recession: Nonlinear DSGE model with time-varying parameters’, Ekonomický časopis, 63 (1): 34-50.

TVRZ, S. and VAŠÍČEK, O. (2016). The Great Recession in the Non-EMU Visegrád Countries: A Nonlinear DSGE Model with Time-Varying Parameters, Czech Journal of Economics and Finance. Volume 66, Issue 3, pages 207-235.

VAŠÍČEK, O., TONNER, J. and POLANSKÝ, J. (2011). Parameter Drifting in a DSGE Model Estimated on Czech Data, Czech Journal of Economics and Finance, 61 (5): 510-524.

ŽÚDEL, B. and MELIORIS, L. (2016). Five Years in a Balloon: Estimating the Effects of Euro Adoption in Slovakia Using the Synthetic Control Method, Economics Department Working Papers, No. 1317, OECD.

Review of Economic Perspectives

Národohospodárský obzor; The Journal of Masaryk University

Journal Information


CiteScore 2017: 0.42

SCImago Journal Rank (SJR) 2017: 0.153
Source Normalized Impact per Paper (SNIP) 2017: 0.351

Cited By

Metrics

All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 113 113 12
PDF Downloads 46 46 2