E32 - Business Fluctuations; CyclesReturn

This critical review explains the negative impact of the euro on the Spanish economy and its distortion in the period from 2002 to 2014. In this first cycle within the euro area, there was a financial boom, without voluntary savings, which generated a lack of coordination in the economic process and structure. The result was a bubble of overconsumption and malinvestments, which burst with a deflation of capital and wages, and a switch from construction industry to tourism services as Spain's main economic sector. The economic distortion was such that it delayed the exit from the Great Recession of 2008 and the European Financial Crisis of 2010 until 2014, with a recovery and the beginning of a new cycle. The Austrian business cycle theory and capital-based macroeconomics are used to support and illustrate the case study, with quantitative techniques: not to predict, but only to show the real development and to facilitate dialogue with other economic schools.

This paper investigates multiscale causal relations between consumer and producer prices in eight emerging Eastern European countries. We use wavelet coherence to measure the multiscale nexus between inflation types, and wavelet-based Bayesian quantile regression (BQR) to inspect the spillover effect. Wavelet coherence plots indicate low coherence in the short time horizon (up to two months) and higher coherence in the longer time horizons, particularly from four mounts onwards. Areas of very high coherence are found around the Global Financial Crisis and the COVID-19 pandemic. Bidirectional spillover effect exists in all the countries except Poland and Hungary. In the Czech Republic, Slovakia, Estonia and Slovenia, producer prices have the upper hand over consumer prices, and this effect is stronger in the longer time horizons, which is in line with the wavelet coherence results. Only in the case of Lithuania, we find that consumer prices have a stronger effect on producer prices than vice versa, and this happens in the short term. In the case of Latvia, the BQR results are inconclusive because both inflation types have a precedence, but in different time horizons.

The article investigates potential output and output gap modelling and estimation in the Czech Republic in the period 1996-2021, including the global recession from 2008 and the recent crisis caused by government measures against the COVID-19 pandemic. The unobserved components (UC) methodology is applied, coefficients are estimated by the maximum likelihood method, unobserved variables are estimated using the Kalman filter. The standard UC model is modified in an original way to nonlinearly describe the hysteresis effect by allowing the output gap to have an asymmetrical influence on potential output. The econometric model verification proved significance of the hysteresis effect and showed a substantial inertia of negative consequences of both crises. Predictions of an impact of the War in Ukraine on the gap were also calculated and the uncertainty associated with these predictions was quantified.

Fiscal policy undoubtedly represents one of the main economic policies of the state influencing the economic cycle. The subject of the article is a discussion of fiscal impulse measurement, which is a necessary condition for long-term optimal counter-cyclical fiscal policy settings. The study distinguishes between the primary effect of the fiscal impulse and the overall impact on the rest of the economy. Thus, the fiscal multipliers are estimated on Czech data including a specific crisis and post-crisis period. The findings may contribute to optimal fiscal policy settings in various stages of the business cycle.

The aim of the article is to construct a model for estimating the quarterly gross value added (GVA) of the national economy (GDP) based on the results of business surveys (so-called confidence indicators) in industry, construction, commerce and services (incl. banking sector), and to set the forecast for four quarters ahead. The suitability of the applied approach is assessed using pairwise dependencies for individual sectors. In the case of both pairwise and multidimensional dependencies, the authors proceed from a linear dynamic model, which is a combination of ARIMA models (or SARIMA models) in conjunction with regression analysis, where the variables explained are time-shifted. The quality of the estimated models is proven to be very high. The analysis shows a significant link between the sector's gross value added and sectoral confidence indicators. Significant predictors of the GVA of the national economy and GDP show explanatory variables of confidence indicators in industry and construction, whereas indicators of confidence in trade and services were statistically insignificant. Timely knowledge of these indicators in conjunction with linear dynamic models allows better and faster predictions of quarterly GVA and GDP than with conventional time series models.

This analysis seeks to map the level of reconciliation of work and family life of women in the Czech Republic. Using a HP filter, the authors estimate and compare the development of the NAIRU on the labour market in the case of women compared with men aged 20–49. The authors also quantify the impact and character of selected government policy measures on the NAIRU of women in the 20–49 age group. An explanation is offered for negative and positive influence. While the unemployment rate measured for the age group 15–64 reached 6.9%, it was 7% for the age group 20–49 and 8.6% for women. An increase in the NAIRU of women aged between 20 and 49 given by reconciliation of work and family life was identified, e.g., for the men’s part-time job category or social care facilities category. To the contrary, a decrease in the NAIRU of women (20-49) was identified for the following categories: number of hours worked per week, number of pupils in after-lessons school clubs, women’s part-time jobs, number of children enrolled in kindergartens, and day care service spending.

The aim of the paper is to present traditional and alternative look at the evolution of business cycle synchronisation in the European Union throughout four periods determined according to integration process. Gradually we apply cross-correlations and rather alternative minimum spanning tree method to evaluate synchronization process and core or peripheral countries. An endogeneity argument and decreasing asymmetries among integrated countries were confirmed with a light rupture during financial and economic crisis. Position of France and Germany as core countries was corroborated. However, single monetary policy should be implemented according to average macroeconomic evolution in the euro area and not according to particular situation in France and/or Germany which could be inappropriate for certain countries.

Cyclical behavior of the economy can be monitored and predicted with the help of composite leading indicator (CLI) which is an aggregate index of several individual indicators and is statistical relevant for analyzing and forecasting of reference series. This article is focus on construction of CLI for Slovakia and its changes over time. For its construction is used combination of methodologies of OECD and Institute of Informatics and Statistics (Infostat). These methodologies are based on chosen reference series and 124 economic indicators, filtering of time series with Hodrick-Prescott filter (HP filter), normalization of time series, cross correlation and creation of CLI with system of same and different weights. On the base of economic indicator analysis are selected different groups of leading cyclical indicators in seven different time periods. It means that exist changes of CLI composition over time. The best predictable abilities of Slovak business cycle has CLI constructed from time period 2010-2015. On this base was created short-term forecast of Slovak business cycle which supposed economic grow in second and third quarter 2017. Positive GDP growth expectations create space for new investment opportunities as well as government restrictions on public expenditures. The result of our analysis indicate that in the future we can expect new changes in composition of CLI for Slovak economy.

In this article we analyze the continuous inflation dynamics using a four-equation model. When constructing the model, the traditional Kaldorian two-equation model is extended by adding two other equations. One of them describes an adaptive inflation expectations and the other continuous dynamics of the money market. In this setting, the instability velocity of money circulation is assumed due to the effects of expected inflation on money circulation velocity. Then the parameters of the model are estimated using the real Czech economic data. As it is a non-linear model in its parameters, a non-linear estimation technique is used for this purpose. Further, the stationarity as well as the stability of the estimated model is thoroughly examined as its instability may indicate that the model can generate some complex dynamics.

The sovereign debt crisis inside the European Monetary Union (EMU) as well as competitiveness problems of some EMU members made the members and non-members of the club address one question: Is a monetary union advantageous? This paper deals with the issue whether or not the Maastricht criteria are good indicators for deciding to join the eurozone, namely for a small open economy, as the Czech Republic. In particular, this analysis addresses the issue of price competition, which can be measured by the real effective exchange rate. In fact, the Maastricht criteria do not reflect the competitiveness of a country. Thus the arguments concerning the advantages/disadvantages of the adoption of a common currency should not be based only on the Maastricht criteria, but at first on the philosophy of the real effective exchange rate. We define a basis for setting new criteria to decideing on joining the monetary union. To sum up, if depreciation/devaluation of the real exchange rate is not a competitive advantage for both Czech exports and the Czech economy (especially in the long term), then the main economic argument against joining the EMU disappears.

Conditional Political Budget Cycle in the OECD Countries Examination of the so called political business cycle (i. e. macroeconomic cycle induced by the political cycle) provides little evidence in empirical studies. The empirical evidence of statistically signifi cant increase in the economic activity before election is especially a matter of less developer countries. There is a shift in focus to the examination of the political budget cycle in case of the developed economies. This paper examines the presence of conditional political budget cycle (PBC) in the OECD countries using data from all 34 member states over the period 1995- 2012. We suppose that the conditionality of the PBC depends on the credibility and transparency of the fi scal policy. The dynamic panel linear regression model is used in this article. Generalized method of moments (GMM) with instrumental variables (IV) is used for estimating arameters in this model. Three important results emerge: First, there is a PBC in the OECD countries. Second, the PBC in OECD countries strongly depends on credibility and transparency of fi scal policy. Third, the shape of the PBC in the OECD countries indicates that there is an immediate fi scal restriction after the elections.

The aim of the article is to describe effects of selected institutional factors on structural and cyclical unemployment. The theoretical and methodological basis of institutional aspects of the labour market functioning draws from a number of previously published studies. Factors are modified for national conditions of the Visegrad Group (hereinafter V4). The article compares NAIRU estimates of previously fine-tuned models with estimates of models extended by selected institutional factors. The difference between these groups will then be compared with development of relevant variables of the real economy. That will allow us to determine whether the institutional factor infl uenced structural or cyclical unemployment. We will also specify the intensity of its negative influence on the two types of unemployment. The final results of the analysis are compared with results of previous studies and world literature data.

The article deals with the theoretical issues of macro-prudential policy, the influence of risk channel of monetary policy on financial stability and the cooperation of macro-prudential and monetary policy, respectively the compatibility of the objectives of these policies. On the Czech economy data is therefore tested the relationship between monetary policy conditions and prices of selected categories. The model results open the door to greater use especially of the industrial producer price index, respectively its sub-indices, for the coordination of monetary and macro-prudential policy in the Czech Republic.

Aggregate non-performing loans are the loans of a banking sector with delayed payments. This paper examines how aggregate non-performing loans (NPLs), as an indicator of aggregate credit risk, respond to macroeconomic developments in the Czech Republic. It uses data for the period 1993-2014 and the Bayesian estimation method of instrumental variables. This method exploits a priori information from similar studies for other countries and considers the potential endogeneity of macroeconomic developments vis-a-vis non-performing loans. The estimation results reveal a strong persistence of NPLs and a significantly positive and robust, effect of economic growth and income effect of the exchange rate on the financial condition of borrowers. We also find a significantly negative and robust effect of lending rates on the financial condition of borrowers. The effects of inflation and unemployment are significant but not as robust as the experience of other countries suggests. The balance sheet effect of the exchange rate is positive, but its significance is changing with model specifications. For economic policy, a timely, real depreciation of the koruna in response to rising credit risk could be an effective measure to stabilize the solvency of the banking sector.

Having regard to the importance of the compensation effect between output and unemployment known as Okun's law for both contemporary economic theory and for practical economic policy, the intent of the paper is to examine the empirical validity of Okun's law for the four Visegrad Group countries with consideration given to possible asymmetry. Using the quarterly data for the period from Q1/1998 and Q2/2014 and its gap version, Okun's law is verifi ed for each investigated country and some specifi cs of labour markets are highlighted so as to explain the magnitude of the estimated Okun's coeffi cients. The contribution of the paper is two-fold. First, this empirical relationship is confi rmed in validity with attention directed to the foursome of countries. Second, the analysis utilizes the non-linear ARDL model proposed in the paper to accommodate possible nonlinearity and asymmetry in Okun's law. Asymmetry is found and economically reasoned by the specifi cs of the labour market only for Slovakia since there appears to be a different reaction of the unemployment gap to positive output gap and to negative one.

Paper deals with an important area of monetary economics, the demand for money. Concretely we propose results from an empirical investigation of determinants of the demand for real money balances in the Czech Republic. From the methodological point of view we use models of multivariate time series analysis in the co-integrated context, the VAR and VEC models, and the generalized impulse response functions for an estimation of trajectories of adjustment processes. Based on the results, we can say that the real money balances in the broader definition (in the sense of M2 monetary aggregate) are demanded by economic agents in relation to a long-run evolution of their needs, and during this, they are not systematically influenced by economic shocks. This also implies stability and simple predictability of the demand. Demand in the narrow sense, including currency and demand deposits, exhibits a greater volatility due to different shocks. Therefore this narrow demand is continuously adjusted to arising disequilibriums, going from both inside and outside of the economy. Nevertheless in the long run there exists an equilibrium relationship among the demand for real money balances in the narrow sense, the interest rate, the real effective exchange rate and the rate of unemployment. Majority of observed relationships is consistent with a priori assumptions, which are formulated through a theoretical model. Finally, it is possible to show, that direct long-run equilibrium relationship between the demand for real money balances in the narrow sense and the volume of transactions (or real production) does not exist. On the contrary, we have also found that a transactions demand is influenced by the business cycle. However the elasticity of transactions demand with respect to the business cycle is relatively small and hence we conclude that a considerable part of this demand is constant over time and a speculative demand is more important for the description of the demand for real money balances development. The difference between a behavior of the demand for real money balances in the narrow and in the broader definition, we are explaining by a portfolio re-optimization effect.

The aim of this paper is the formulation and econometric estimation of a small macroeconomic model, which is intended to provide an understanding of fundamental economic relationships in the eurozone. Unemployment is used to represent real economic activity. Phillips curve links unemployment with infl ation and Taylor rule describes the monetary policy of the European Central Bank. The results from econometric estimation indicate that interest rate policy of the European Central Bank has only a very limited effect on unemployment. Furthermore, the reaction coeffi cient for infl ation in the Taylor rule does not support Taylor principle. This paper also presents original method for measuring NAIRU. The proposed method for estimating NAIRU uses probabilities of fi nding and loosing a job. These probabilities are made endogenous in the model, which is the main contribution of the paper.

The aim of this paper is to empirically investigate the explanatory power of Austrian business cycle theory (ABCT). My dataset consists of US quarterly time series within the period 1978-2013. Following Wainhouse (1984), Keeler (2001) and others I employ Granger causality as one of the primary tools of the analysis. Furthermore I also add impulse response functions to analyse the observed relations in closer detail. Two main hypotheses were tested. First one analyses how changes in interest rate affects relative proportion of investment and consumption outlays. Second hypothesis investigates how labour resources are reallocated as a consequence of an increase in interest rate. In both hypotheses, two concepts of interest rate were employed. Application of "explicit" interest rate does not seem to generate significant results. On the contrary, results fit in the Austrian story much better when implicit rate is employed. The traditional version of ABCT, which relies more on explicit interest rates, seems to suffer from invalid assumption about the allocation of credit during expansionary phase of business cycle.

The article formulates the general political-economic possibilities for smoothing of business cycles under the realistic assumptions of the current credit-economy. Firstly it endeavours to explain the mechanism of the financial and real economy functioning with an emphasis on banking sector. The initial theoretical model is considered as unrealistic but proper for demonstration of the consequences of money endogeneity, mechanism of banking financing and dependency of economic growth on credit growth and savings. On the basis of this explanation the article identifies the real causes of credit cycles in the current credit-economy and performs some relevant empirical evidence. The causes include insufficient credit growth, significant concentration of monetary assets, disproportionate development between inflation and excess money growth, deregulation, transmission of credit risk, deleveraging of private sector and imperfect steering of interest rates. Subsequently, author constitutes the basic political-economic tools which could possibly eliminate (or at least mitigate) both the deep and shallow recessions in ex-ante and ex-post periods. The study concludes that possible political-economic tools are following: traditional and non-traditional monetary policy, fiscal expansion, redistribution through progressive taxation, microeconomic and macroeconomic regulation. The entire study is based on US data.

The article deals with a problem of changes in inventories, its variability and its synchronization with changing savings and import in the Czech Republic in 1999-2012. In theoretical part both macroeconomic and microeconomic aspects of changes in inventories are discussed in the context of expected and unexpected demand shocks. In empirical part sources of GDP variability are analyzed using trend and cyclical data. Trend variability of changes in inventories is less important for trend GDP variability than in case of cyclical variability and vice versa for cyclical GDP and changes in inventories. Parameters of VAR model of cyclical changes in inventories, savings and import are also estimated. The results show that change in savings is a source of unexpected demand shock with impact on inventories. Reaction of import confirms that savings influence more domestic products consumption than imported products which are more driven by exports.

This article's objective is to suggest and create the composite leading indicators and their importance for monitoring in a short term prediction of economic cycles in the V4. We describe in detail the methodologies of OECD and Eurostat, which deal with the prediction of the economic cycles in the V4 countries through CLI. The relation of 475 selected economic indicators and reference series, which represent the economic cycle of the V4 countries, is analyzed in the empirical part of this article. Based on the performed analysis, we define groups of leading, parallel and lagged indicators. We choose those leading indicators that are the most appropriate for the creation of CLI. Then the created CLIs and their prediction abilities are studied through the values of crosscorrelations. Besides the creation of our own CLIs, we also compare them with CLIs of Eurostat and OECD and create the conclusions on suitability resp. unacceptability of the individual CLIs for a given V4 country.

The article deals with the theoretical issues of macroprudential policy, shift of monetary policy paradigm towards application of so called "leaning against the wind" strategy and mutual cooperation of these policies, which are both aimed at maintaining financial stability. For detection of financial instability are mainly used early warning indicators, which are most often based on the credit activity of the economy and asset prices development. In the second part, we examine the impact of the credit activity in the Czech Republic on the prices of particular assets and its subsequent effect on the consumer price index.

The objective of the article is to identify impact of economic policy implications on current financial and economic crisis. The analysis examines a hypothesis that the main causes of financial and economic crisis include unbalanced developments of the macroeconomic sphere as well as existing weaknesses of banking systems, which often do not evolve in line with the development of economy fundamentals. The article is going to inspect three areas: (i) What development trends and economic policy were registered in the pre-crisis period in order to identify the main causes of economic fluctuations of economy; (ii) How economic policies responded to the course of the financial and economic crisis; (iii) What was the effect financial crisis had on the real economy development? The main task for after-crisis periods is to improve setting of monetary and fiscal policy, bank risk management system and also system for monitoring and analysing the business cycle.

It is generally accepted, that output gap belongs to the main indicators of inflationary pressures and is often used by central banks when executing monetary policy. When output gap is positive, there are inflationary pressures in economy and inflation will rise. In case, that there is negative output gap in economy, inflation will decline. The aim of this paper is to find whether there is relationship between these two variables for Czech economy. To find the answer, two gap models following Coe, McDermott (1997) and Claus (2000a) will be used - with level of the output gap and change in the output gap. All tests confirm, that central bank should use it as indicator of inflation.

The main goal of this paper is to create composite leading indicator for Czech economy and its comparison with composite leading indicators created by OECD and Eurostat. The theoretical part of the paper consists of the methods that are employed for creation composite leading indicator in the world. We compare methods of OECD, Eurostat, Conference Board and the methods of Slovak and Czech authors. The empirical part of the paper is focused on analysis of 120 indicators of Czech economy and their selection on the coincident, lagging and leading indicators. From the group of leading indicators is created new composite leading indicator for Czech economy which can by used on monitoring and short-term prediction of Czech business cycle.

The economic development points out the importance of the development study of sectors and branches of economics, because they can deepen or moderate volatility of the economic cycle. The article aims at mapping the rate of unemployment in the primary, secondary and tertiary sector in the Czech Republic. With using the HP filter we estimate NAIRU. The comparison of the actual rate of unemployment with the average value NAIRU was used for the specification of the economic cycle. We compare the rate of unemployment, NAIRU and unemployment gaps in sectors with the average value on the national level too.

In various fields of macroeconomic modelling, researchers often face the problem of decomposing time series into trend component and cycle fluctuations. While there are several potentially useful methods to perform the task in question, Hodrick-Prescott (HP) fi lter seems to have remained (despite some serious criticism) the most popular approach over the past decade. In this article I propose a straightforward and easy-to-implement bootstrap procedure for building pointwise and simultaneous confidence intervals around "point estimates" produced by HP filter. The principle of proposed method can be described as follows: first, we use maximum entropy bootstrap (Vinod, 2004, 2006) to approximate ensemble from which original time series is drawn and then apply the HP filter directly to each bootstrap replication. If necessary, the proposed method can be adapted to allow for uncertainty in the smoothing parameter. Practical usefulness of our approach is demonstrated with an application to the GDP data. Results are encouraging - obtained confi dence intervals for the trend and cyclical component are overall plausible thus supplying a researcher with some measure of uncertainty related to HP filtering. Finally, we demonstrate that a former approach to build confidence intervals for HP filter (Gallego and Johnson, 2005) leads to erratic inference for cycle due to the shape-destroying block bootstrap sampling.

Paul de Grauwe and Paul Krugman are two of the most significant economists who are interested in single currency influence on the economic cycle. In our paper we try to show that a complex view of argumentation of both the economists i.e. (from both the views of the individual countries and the view of individual regions) reveals that the existence of the currency union will lead to the most frequent asymmetrical shocks in the currency union mentioned. To limit ourselves only to the view of the individual countries, as the authors mentioned do, will lead to unacceptable simplification of the whole problem. Further we try finding out if after introducing single currency, economic cycles became synchronized in the eurozone. For the determination of the harmony between economic cycles use is made of the real GDP in the individual countries of the eurozone. We deal with time series from the years 1994 to 2005. With the help of the correlation coefficients we finding out if the rise of real GDP the individual countries of eurozone developed similarly as after rise of the eurozone then before. We come to the conclusion that on the basis of the result achieved it will not be possible to speak about grater harmonization of economic cycle after the rise of the eurozone. But with a view of short time series and a short period of accommodation of economies this result is in no way unacceptable.

The efficiency of macroeconomic policies depends on adequate business cycle approximation. Given that potential output and the output gap (the difference between actual and potential output) are not directly observable, their values need to be estimated using alternative statistical, structural, and combined techniques. In this paper the Hodrick-Prescott filter and the Cobb-Douglass production function has been applied on the Slovak conditions. The pross and coins of both methods are analysed. The Hodrick-Prescott filter does not capture the structural changes, which were significant especially in the first half of analysed period. Thus the Cobb-Douglass production function seems to be more appropriate. It enables to detect particular factors of potential output growth as technological progress, capital and labour. Despite of potential shortcomings, this approach is still widely used by international institutions, governments and researchers.

We consider two markets in our model: wholesale, where producers' supply interacts with distributors' demand, and retail with distributors' supply and consumers' demand. The wholesale market determines the producer price index (PPI), production and indirectly also employment. In the retail market the consumer price index (CPI) is formed. We specify a simple dynamic model with two state variables: CPI and PPI. Real variables - production and employment - are fully determined by CPI and PPI. A supply shock shows itself in instant PPI adjustment, a demand shock in CPI. Thus, in the CPI inflation equation the supply shocks are fully determined endogenously by the wholesale - retail markets relationship and for practical use we should add exogenous demand shock to the equation. On the other hand, it would be suitable to add exogenous supply shocks to the PPI inflation, production and employment equations. In the second part we implement the model on monthly data of EU countries. It will be necessary modify the model specification so that we coped with the problems of seasonality and not exactly the same structure of baskets, used for CPI and PPI computations. We estimate each equation of the model both for each single country separately and for the whole panel.

In this contribution, we compare the correlation of supply and demand shocks for the countries of the euro zone and the acceding countries in Central Europe. Demand and supply shocks are recovered from estimated structural VAR models of output growth and inflation in individual countries. We find that Poland and Hungary face already a comparably high similarity with the countries of the current euro zone. However, the remaining countries show still significant differences in business cycles as compared to the euro zone. This is likely to indicate that the loss of monetary sovereignty may be costly. In turn, the integration is expected to align the business cycles of these countries in the medium run. We document a similar development for the countries of the European Union in the 1990s.

The paper focuses on the oil price-macroeconomy relationship by means of analyzing the impact of oil price changes on economic growth in the United States of America from 1947: Q1 to 2001: Q4. First, we present the most important oil shocks that occurred in the second half of the last century. Then we describe three different proxies of oil price changes. Second, we provide large analyze of the impact of oil price increases and decreases on the GDP using the different types of measurements of oil shock. The results suggest that an oil price increase, which overcomes it's own maximum values from three previous years, has greater negative effect on production growth than if it simply corrects the previous decreases or exceeds a one year maximum only. The paper also presents a hypothesis that oil price decreases do not contribute to economic growth. All these results allow us to maintain the nonlinear interpretation of the analyzed relationship suggested by Hamilton.