Research Papers: Working and Occasional Papers (WP/OP)

WP 7/2020
On Using Triples to Assess Symmetry Under Weak Dependence
Zacharias Psaradakis, Marián Vávra

Abstract: The problem of assessing symmetry about an unspecified center of the onedimensional marginal distribution of strictly stationary random processes is considered. A well-known U-statistic based on data triples is used to detect deviations from symmetry, allowing the underying process to satisfy suitable mixing or nearepoch dependence conditions. We suggest using subsampling for inference on the target parameter, establish the asymptotic validity of the method in our setting, and discuss data-driven rules for selecting the size of subsamples. The small-sample properties of the proposed procedures are examined by means of Monte Carlo simulations and an application to real output growth rates is also presented.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 6/2020
Surveying the Impact of the Covid-19 Recession on the Financial Situation of Indebted Households
Andrej Cupák, Ján Klacso, Martin Šuster

Abstract: We study the situation of indebted households hit by the COVID-19-driven recession, utilizing a unique survey conducted by the National Bank of Slovakia. As many other countries, Slovakia implemented a wide moratorium on debt repayments to financial institutions. While this is an important policy stabilization tool, we need information on the prospects of the households that postponed their debt repayments. The survey shows that 9%-12% of households that took advantage of the moratorium, or any type of forbearance, expect serious difficulties with resuming payments of their debts in the beginning of 2021. We show that the households that were vulnerable already before the crisis were more likely to use the deferral, or other type of easing of credit conditions. We also show that households with steeper income drops, deteriorating DSTI, or self-employed, are more likely to be pessimistic about their debt payment prospects.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 5/2020
Fifty Shades of QE: Conflicts of Interest in Economic Research
Brian Fabo, Martina Jančoková, Elisabeth Kempf, Ľuboš Pástor

Abstract: Central banks sometimes evaluate their own policies. To assess the inherent conflict of interest, we compare the research findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers report larger effects of QE on output and inflation. Central bankers are also more likely to report significant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production.
Full Paper in English (PDF)

WP 4/2020
Confidence, financial literacy and investment in risky assets: Evidence from the Survey of Consumer Finances
Andrej Cupák, Pirmin Fessler, Joanne W. Hsu, Piotr R. Paradowski

Abstract: We employ recent Survey of Consumer Finances (SCF) microdata from the US to analyze the impacts of confidence in one’s own financial knowledge, confidence in the economy, and objective financial literacy on investment in risky financial assets (equity and bonds) on both the extensive and intensive margins. Controlling for a rich set of covariates including risk aversion, we find that objective financial literacy is positively related to investment in risky assets as well as debt securities. Moreover, confidence in own financial skills additionally increases the probability of holding risky assets and bonds. While these relationships are rather robust for the extensive margin, they break down with regard to the conditional share of financial wealth in risky assets of those who actually hold them. The relevance of financial literacy as well as confidence varies considerably with the distribution of wealth as well as across several socio-economic dimensions such as age, education and race.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 3/2020
R-star in transition economies: Evidence from Slovakia
Patrik Kupkovič

Abstract: The aim of this paper is to estimate the equilibrium real interest rate in Slovakia by means of a semi-structural unobserved components model. The equilibrium real interest rate is understood here as a short-term, risk-free real interest rate consistent with output at its potential level, and inflation at its target level after the effect of all cyclical shocks have disappeared. Contribution to the literature is in two
ways: i) development of a modelling framework for small, open, and converging economies which can be used for other transition economies, and (ii) assessment of the adoption of the euro and its effect on the equilibrium real interest rate. Based on the estimates, the equilibrium real interest rate fell from the positive pre-euro (also pre-crisis) level into to the negative territory.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 2/2020
Identifying the Financial Cycle in Slovakia
Patrik Kupkovič, Martin Šuster

Abstract: The concept of a financial cycle has become a matter of immediate concern for central bankers. The aim of this paper is to construct an aggregate indicator of the financial cycle from input indicators such as credit growth, house prices, debt burden, credit standards, interest rate spreads, and current account deficit-to-GDP ratio. We contribute to the literature with additional evidence on the financial cycle for small open economies with shallow financial markets. Expansionary and contractionary periods of a financial cycle identified by the indicator can be a valuable source of information for policy makers.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 1/2020
Determinants of Global Value Chain Participation: Cross-country Analysis
Biswajit Banerjee, Juraj Zeman

Abstract: This paper examines the factors that influence the five most common measures of GVC participation for the sample of countries included in the World Input Output Database (WIOD). For this sample, backward linkage is stronger than forward linkage and is the main channel for integration into GVCs. Also, a stronger backward linkage is associated with a relatively more downstream position in GVCs. Country size and openness to inward FDI are important determinants of GVC indicators. Of all the industry groupings, the influence on all the GVC indicators is strongest for high-tech manufacturing. In both manufacturing and services, the higher is the share of the high-tech categories the greater is the backward linkage and GVC participation rate, and the GVC position is relatively more downstream. The real exchange rate is positively associated with the share of domestic value added in gross exports (VAX ratio), which is a manifestation of the exchange rate elasticity of value-added exports being smaller than the exchange rate elasticity of gross exports.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 9/2019
Fiscal Policy and the Nominal Term Premium
Roman Horváth, Lorant Kaszab, Aleš Maršál

Abstract: We estimate a New Keynesian model on post-war US data with generalised method of moments using either constant or time-varying debt and distortionary labor income taxes. We show that accounting for government debt and distortionary taxes help the New Keynesian model match the level of the nominal term premium with a lower relative risk-aversion than typically found in the literature.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 8/2019
PreMISE: DSGE Model of the Slovak Economy Integrated in a Monetary Union
Milan Výškrabka, Martin Železník, Stanislav Tvrz

Abstract: The goal of the paper is to introduce the new structural model (PreMISE) of the National bank of Slovakia and illustrate how it is used for policy analysis. The model derivation and characteristics of its behavior are presented. At the same time procedures that are useful during the prediction process and their contribution to policy analysis are shown.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 7/2019
The limits of foreign-led growth: Demand for digital skills by foreign and domestic firms in Slovakia.
Jan Drahokoupil, Brian Fabo

Abstract: This paper addresses demand for skilled labour in Slovakia, a country that is characterized by a high degree of economic integration through inward foreign investment and through international backward linkages within global value chains. Developing existing approaches to political economy and global production networks (GPNs), our framework distinguishes between demand for digital skills on two levels: occupational structure; and skill content within occupational types. In this way, we can assess not only what kind of workers are hired by companies, but also what kind of specific skills are required from these workers. Using a large dataset on vacancies from a leading job portal, combined with administrative data on company size and ownership, we show that foreign and mixed-ownership companies generally advertise for higher skilled occupations than domestic firms, but their skill requirements for these jobs are lower than in similar jobs in domestic companies. Foreign companies have higher skill requirements only in some blue-collar jobs linked to assembly and component manufacturing. For white collar occupations, domestic companies are more likely to require digital skills. The findings confirm our expectations about the position of Slovakia as a country in an integrated periphery, where multinational companies are heavily present but rarely bring complex activities. Our key policy implication is that foreign direct investment in the integrated periphery brings only a limited potential for technology transfers.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 6/2019
Trend Inflation Meets Macro-Finance: The Puzzling Behavior of Price Dispersion.
Aleš Maršál, Katrin Rabitsch, Lorant Kaszab

Abstract: Motivated by recent empirical findings that emphasize low-frequency movements in inflation as a key determinant of term structure, we introduce trend inflation into the workhorse macro-finance model of Rudebusch and Swanson (2012). We show that this compromises the earlier model success and delivers implausible business cycle and bond price dynamics. We document that this result applies more generally to non-linearly solved models with Calvo pricing and trend inflation and is driven by the behavior of price dispersion, which is i) counterfactually high and ii) highly inaccurately approximated. We highlight the channels behind the undesired performance under trend inflation and propose several remedies.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 5/2019
Institutions and determinants of firm survival in European emerging markets.
Eduard Baumöhl, Ichiro Iwasaki, Evžen Kočenda

Abstract: We analyze the impact of institutional quality on firm survival in 15 European emerging markets. We employ the Cox proportional hazards model with a large dataset of firms during 2006–2015. Our results show that institutional quality (IQ) is a significant preventive factor for firm survival, and it displays diminishing returns as its effect is largest for low-level IQ countries and smallest for high-level IQ countries. In terms of specific indicators, the level of national governance and the extent of corruption control exhibit the key impacts. In terms of firmspecific controls, indicators of ownership structure and aggregate financial performance are the economically most significant factors associated with increased survival probability of firms in European emerging markets.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 4/2019
Firm survival in new EU member states.
Eduard Baumöhl, Ichiro Iwasaki, Evžen Kočenda

Abstract: We analyze firm survival determinants in four new European Union member states (the Czech Republic, Hungary, Poland, and Slovakia). We employ the Cox proportional hazards model on firm-level data for the period of 2006 to 2015. We show that in all four countries, less concentrated control of large shareholders, higher solvency, and more board directors are linked with the increased probability of firm survival. However, an excessive number of board directors has a detrimental effect. Firms with foreign owners and higher returns on their assets exhibit better survival chances. Conversely, across countries and industries, larger firms and those hiring international auditors have lower probabilities of survival. A number of specific determinants influence firm survival in different ways, emphasizing the importance of country and industry differences when studying firm survival. We also document that in an economic sense, determinants associated with the legal form, ownership structure and corporate governance show the most beneficial effects with respect to firm survival.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 3/2019
Construction of a survey-based measure of output Gap.
Michal Benčík

Abstract: The output gap derived by conventional methods is dependent on data from national accounts statistics. Consequently, the output gap is usually the subject of significant updates if hard data are revised. Reliability of output gap estimates can also be affected by properties of the applied method, for instance the end-point problem (e.g. in the commonly used HP filter). The aim of this paper is to offer a solid methodology to measure output gap using exclusively the output series and surveys that allow for a less uncertain assessment, while eliminating the endpoint problem. We present and apply a method of constructing the output gap from surveys in Slovakia. The method consists of principal component analysis and Kalman smoother applied to the first principal component. The path of the resulting output gap is fairly similar to the path of other measures of output gap, but its revisions (especially during the outbreak of the Great Financial Crisis) are smaller than those of traditional measures.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 2/2019
Yield Curve Dynamics and Fiscal Policy Shocks
Adam Kučera, Evžen Kočenda, Aleš Maršál

Abstract: We use an affine term structure model with time-varying macro trends and a vector autoregression model to investigate the response of the US Treasury yield curve to changes in fiscal policy. By accounting for the timing of the fiscal policy in the shock identification we can separate the effect of news about future increases in government spending from the effect of innovations in changes of current government expenditures. Further, we use the Baker, Bloom, and Davis (2016) uncertainty index dataset to explain the flight to quality type of events. By controlling for the low frequency movement in yields and the decomposition of yield to risk neutral rates and term premia we show that the news channel is driven by a cautious response of agents to an increase in projected future government spending and leads to a drop in yields. This result contrasts with shock into contemporaneous spending which has no significant impact on bond yields.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 1/2019
The effect of the single currency on exports: comparative firm-level evidence.
Tibor Lalinský, Jaanika Meriküll

Abstract: We investigate how adopting the euro affects exports using firmlevel data from Slovakia and Estonia. In contrast to previous studies, we focus on countries that adopted the euro individually and had different exchange rate regimes prior to doing so. Following the New Trade Theory we consider three types of adjustment: firm selection, changes in product varieties and changes in the average value of the exports that compose the exports of individual firms. The euro effect is identified by a difference in differences analysis comparing exports to the euro area countries with exports to the non-euro area EU countries. The results highlight the importance of the transaction costs channel related to exchange rate volatility. We find the euro has a strong pro-trade effect in Slovakia, which switched to the euro from a floating exchange rate, while it has almost no effect in Estonia, which had a fixed exchange rate to the euro prior to the euro changeover. Our findings indicate that the euro effect manifested itself mainly through the intensive margin and that the gains from trade were heterogeneous across firm characteristics.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 5/2018
Bootstrap Assisted Tests of Symmetry for Dependent Data.
Zacharias Psaradakis, Marián Vávra

Abstract: The paper considers the problem of testing for symmetry (about an unknown centre) of the marginal distribution of a strictly stationary and weakly dependent stochastic process. The possibility of using the autoregressive sieve bootstrap and stationary bootstrap procedures to obtain critical values and P-values for symmetry tests is explored. Bootstrap-assisted tests for symmetry are straightforward to implement and require no prior estimation of asymptotic variances. The small-sample properties of a wide variety of tests are investigated using Monte Carlo experiments. A bootstrap-assisted version of the triples test is found to have the best overall performance.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 4/2018
Financial Transaction Taxes and Expert Advice.
Michele Dell’Era

Abstract: This paper models trading on expert advice to study the impact of a financial transaction tax on traders’ information and decisions. The tax worsens expert advice by strengthening experts’ incentives to misreport information. This result advances the debate on tax suitability beyond the conventional arguments and provides a new explanation for the observed decline in informational efficiency after the tax introduction: the tax makes traders less informed. The model also generates testable predictions regarding the tax impact on mean and variance of trading volume. Finally, it sheds light on the relationship between the tax and regulation of expert compensation.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 3/2018
Assessing Distributional Properties of Forecast Errors.
Marián Vávra

Abstract: This paper considers the problem of assessing the distributional properties (normality and symmetry) of macroeconomic forecast errors of G7 countries for the purpose of fan-chart modelling. Test statistics based on a Cramer von-Mises distance are used with critical values obtained via a bootstrap. Our results indicate that the assumption of symmetry of the marginal distribution of forecast errors is reasonable whereas the assumption of normality is not.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 2/2018
Financial literacy gaps across countries: the role of individual characteristics and institutions.
Andrej Cupák, Pirmin Fessler, Maria Silgoner, Elisabeth Ulbrich

Abstract: We examine recently compiled microdata from the OECD/INFE survey covering information on the financial literacy of adult individuals from twelve countries around the globe. We find large differences in financial literacy across countries and decompose them into those explainable by differences in individual characteristics and those that cannot be explained by such differences. We show that individual characteristics matter with regard to differences in average financial literacy, but do not fully explain the observed differences. We further relate the unexplained differences in our microeconometric analysis to institutional differences across countries. We find strong relationships between the differences in financial literacy not explained by individual characteristics and life expectancy, social contribution rate, PISA math scores, internet usage, and to a lesser degree by GDP per capita, the gross enrolment ratio and stock market capitalization. Our results suggest that there is room for harmonization of economic environments across countries regarding decreasing inequality in the population’s financial literacy.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 1/2018
Income distribution and economic growth; empirical results for Slovakia.
Juraj Zeman

Abstract: The relationship between income inequality and economic growth is an ambiguous one but most mainstream economists view real wage increases as a drag on economic growth as they lead to higher labor costs, lower competitiveness and reduction of employment. In this study we provide an alternative view and show that a labor income increase may also have a positive effect on growth. Which of these two effects dominates in a particular country depends on the institutional and legal environment of that country, its macroeconomic conditions and also its economic policies. We apply a general Keynesian growth model that combines demand and productivity regimes to test empirically two distinct economies – the small, very open economy of Slovakia and the large, relatively closed economy of the euro area. We find that an income rise increases domestic demand and reduces external trade in both economies. But the total effect of income inequality on economic activity is opposite in both economies in the short run. In the Slovak case the positive effect of lower income inequality on domestic demand is surpassed by its negative effect on net exports. Hence higher income inequality is associated with higher economic growth; the Slovak economy is profit-led. In the case of the euro area the positive effect of income rises on domestic demand is larger than the negative effect on net exports. Hence higher income inequality is associated with lower economic growth; the euro area is wage-led. In the long run, however, both economies are wage-led. The regime switch in the Slovak economy is caused by the inclusion of the positive impact of a wage increase on productivity. We also partially analyze the economies of the Slovak trading partners and doing so we get results for new EU member economies that are compared and contrasted with the old EU members.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 12/2017
Normality Tests for Dependent Data
Zacharias Psaradakis, Marián Vávra

Abstract: The paper considers the problem of testing for normality of the one-dimensional marginal distribution of a strictly stationary and weakly dependent stochastic process. The possibility of using an autoregressive sieve bootstrap procedure to obtain critical values and P-values for normality tests is explored. The small-sample properties of a variety of tests are investigated in an extensive set of Monte Carlo experiments. The bootstrap version of the classical skewness–kurtosis test is shown to have the best overall performance in small samples.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 11/2017
Do Fiscal Multipliers Vary with Different Character of Monetary-Fiscal Interactions?
Michal Benčík

Abstract: We investigate the fiscal multiplier in normal times and in the presence of a binding zero lower bound on interest rates with SVARs. We construct special shocks to interest rates that compensate their reactions to fiscal expansion and hold them constant and apply it to the Euro area and the United States. We find that for the former, the multiplier increases sharply in the ZLB, but it decreases in the ZLB for the latter. The sign of its change is determined by the coordination of fiscal and monetary policy i.e. whether the interest rates rise or drop in response to fiscal expansion. We applied this method to Slovak Republic as well and found that the change of the multiplier in ZLB in Slovak Republic is analogous to that in the Euro area.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 10/2017
Financial literacy and voluntary savings for retirement in Slovakia
Zuzana Brokešová, Andrej Cupák, Gueorgui Kolev

Abstract: We utilise recent Household Finance and Consumption Survey microdata to report first causal effects of financial literacy on voluntary private pension schemes participation for Slovakia. Savings for retirement in the supplementary pension schemes are positively associated with financial literacy after controlling for a set of relevant socio-economic variables. One additional correctly answered financial literacy question leads to a 6 percentage points increase in the probability of having a voluntary pension savings plan in our ordinary least squares estimates. The causal impact of financial literacy increases to 16 percentage points when we address potential endogeneity problem by novel to the literature instrumental variables. Interestingly, we find less significant effects of financial literacy on the probability of individuals having employer-supported private pension savings plans. Our findings inform policy and suggest how policymakers can promote the voluntary retirement savings behaviour of individuals in Slovakia and in other Central and Eastern European countries in times of decreasing benefits of state pensions.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 9/2017
How do firms adjust to rises in the minimum wage? Survey evidence
from Central and Eastern Europe.
Katalin Bodnár, Ludmila Fadejeva, Stefania Iordache, Liina Malk, Desislava Paskaleva, Jurga Pesliakaitė, Nataša Todorović Jemec, Peter Tóth, Robert Wyszyński

Abstract: We study the transmission channels for rises in the minimum wage using a unique firm-level dataset from eight Central and Eastern European countries. Representative samples of firms in each country were asked to evaluate the relevance of a wide range of adjustment channels following specific instances of rises in the minimum wage during the recent post-crisis period. The paper contributes to the literature by presenting the reactions of firms to rises in the minimum wage as a combination of strategies, and evaluates the relative importance of those strategies. Our findings suggest that the most popular adjustment channels are cuts in non-labour costs, rises in product prices, and improvements in productivity. Cuts in employment, which is the adjustment channel most commonly studied in the empirical literature, is less popular and occurs mostly through reduced hiring rather than direct layoffs. Our study also provides evidence of potential spillover effects that rises in the minimum wage can have on firms without minimum wage workers. Finally, we analyse the different firm-level characteristics that drive the choice of adjustment strategies.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 8/2017
Asymmetric wage adjustment and employment in European firms
Petra Marotzke, Robert Anderton, Ana Bairrão, Clémence Berson, Peter Tóth

Abstract: We explore the impact of wage adjustment on employment with a focus on the role of downward nominal wage rigidities. We use a harmonised survey dataset, which covers 25 European countries in the period 2010-2013. These data are particularly useful given the firm-level information on the change in economic conditions and collective pay agreements. Our findings confirm the presence of wage rigidities in Europe: first, collective pay agreements reduce the probability of downward wage adjustment; second, wage responses to demand developments are asymmetric with a weaker downward response. Further, estimation results point to a negative effect of downward nominal wage rigidities on employment at the firm level.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 7/2017
Networks of counterparties in the centrally cleared EU-wide interest
rate derivatives market
Paweł Fiedor, Sarah Lapschies, Lucia Országhová

Abstract: We perform a network analysis of the centrally cleared interest rate derivatives market in the European Union, by looking at counterparty relations within both direct (house) clearing and client clearing. Since the majority of the gross notional is transferred within central counterparties and their clearing members, client clearing is often neglected in the literature, despite its significance in terms of net exposures. We find that the client clearing structure is very strongly interconnected and contains on the order of 90% of the counterparty relations in the interest rate derivatives market. Moreover, it is more diverse in terms of geography and sectors of the financial market the counterparties are associated with. Client clearing is also significantly more volatile in time than direct clearing. These findings underline the importance of analysing the structure and stability of both direct and client clearing of the interest rate derivatives market in Europe, to improve understanding of this important market and potential contagion mechanisms within it.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 6/2017
Measuring the Efficiency of VAT reforms: Evidence from Slovakia
Andrej Cupák, Peter Tóth

Abstract: We estimate a demand system to simulate the welfare and fiscal impacts of the recent value added tax (VAT) cut on selected foods in Slovakia. We evaluate the efficiency of the tax cut vis-a-vis its’ hypothetical alternatives using the ratio of the welfare and fiscal impacts. Based on our findings, tax cuts tend to be more efficient if demand for a good is price-elastic or if the good has several complements. The results also indicate that cherry-picking from food sub-categories could have improved the efficiency of the recent tax change. Further, we found potential revenue-neutral welfare-improving tax schemes, namely, a reduced rate on foods financed by an increased rate on non-foods improves welfare in case of most food types. The paper contributes to the literature by demonstrating that standard approximate efficiency indicators of VAT reforms are biased compared with simulation-based results for any plausible degree of a tax change.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 5/2017
Macroeconomic Impact of Basel III: Evidence from a Meta-Analysis
Jarko Fidrmuc, Ronja Lind

Abstract: We present a meta-analysis of the impact of higher capital requirements imposed by regulatory reforms on the macroeconomic activity (Basel III). The empirical evidence derived from a unique dataset of 48 primary studies indicates that there is a negative, albeit moderate GDP level effect in response to a change in the capital ratio. The effects are likely to be slightly stronger but still low for the CEECs. Meta-regression results suggest that the estimates reported in the literature tend to be systematically influenced by a selected set of study characteristics, such as econometric specifications, the authors’ affiliations, and the underlying financial system. Finally, we document a significant positive publication bias.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 4/2017
On the effectiveness of Central Bank Intervention in the Foreign Exchange Market: The Case of Slovakia, 1999-2007
Biswajit Banerjee, Juraj Zeman, Ľudovít Ódor, William O. Riska Jr.

Abstract: Based on intra-day high-frequency data, this paper investigates the effect of sterilized interventions on the Slovak koruna/euro exchange rate for different time windows during a period that coincides with Slovakia’s preparation for EU accession and euro adoption. Results confirm a significant relationship between intervention and exchange rate change. The maximum effect of intervention is reflected in the exchange rate change within a couple of hours and the effect over longer time windows weakens only gradually. The initial impact of sales interventions is stronger than that of purchase interventions.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 3/2017
Government Spending and the Term Strucutre of Interest Rates in DSGE Model
Aleš Maršál, Lorant Kaszab, Roman Horváth

Abstract: We explore asset pricing implications of productive, wasteful and utility enhancing government expenditures in a New Keynesian macro-finance model with Epstein-Zin preferences. We decompose the pricing kernel into four underlying macroeconomic factors (consumption growth, inflation, time preference shocks, long run risks for consumption and leisure) and design novel method to quantify the contribution of each factor to bond prices. Our methodology extends the performance attribution analysis typically used in finance literature on portfolio analysis. Using this framework, we show that bonds can serve as an insurance vehicle against the fluctuations in investors wealth induced by government spending. Increase in uncertainty surrounding government spending rises the demand for bonds leading to decrease in yields over the whole maturity profile. Bonds insure investors by i) providing buffer against bad times, ii) hedging inflation risk and iii) hedging real risks by putting current consumption gains against future losses. In a special case where the central bank does not respond to changes in output bonds leverage inflation risk. Spending reversals strongly reduce the sensitivity of bond prices to changes in government spending.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 2/2017
Market reading of Central Bankers’ Words. A high Frequency evidence
Pavel Gertler, Roman Horváth

Abstract: This paper examines the financial market impact of intermeeting communication of the members of the European Central Bank’s Governing Council (GC) using high frequency data in the period 2008–2013. Constructing a rich dataset of GC members’ public statements (speeches, conference discussions and media interviews) between monetary policy meetings allows us to investigate a detailed pattern of market responses to the ad-hoc communication of central bankers. Using least squares and quantile regressions, we document the impact of policymakers’ public statements on interest rates and the stock market with very little or no impact on exchange rates. In general, we find
little evidence that the timing, sequencing or content of communication matters in immediate response. On the contrary, the results suggest that the market concentrates on the communication of key members of the committee.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 1/2017
Did quantitative easing boost bank lending? The Slovak experience
Adriana Lojschova

Abstract: We find evidence that households in Slovakia do benefit from the ECB asset purchase programme. On the individual banklevel data of 26 financial institutions (full representation of the banking sector) we establish and confirm a traditional relationship between bank lending and changes to deposit ratio. We find the long-run relationship to be twice as strong in the household sector as in the sector of non-financial corporations. Controlling for interest rate changes and other factors, we also introduce asset purchases into the model. We document some, although limited, evidence of the presence of the bank lending channel of asset purchases in the household sector.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 5/2016
Assessing European firms’ exports and productivity distributions: the CompNet trade module
Antoine Berthou, Emmanuel Dhyne, Matteo Bugamelli, Ana-Maria Cazacu, Calin-Vlad Demian, Peter Harasztosi, Tibor Lalinsky, Jaanika Merikull, Filippo Oropallo, Ana Cristina Soares

Abstract: This paper provides a new cross-country evaluation of competitiveness, focusing on the linkages between productivity and export performance among European economies. We use the information compiled in the Trade module of CompNet to establish new stylized facts regarding the joint distributions of the firm-level exports performance and productivity in a panel of 15 countries, 23 manufacturing sectors during the 2000’s. We confirm that exporters are more productive than non-exporters. However, this productivity premium is rising with the export experience of firms, with permanent exporters being much more productive than starters. At the intensive margin, we show that both the level and the growth of firm-level exports rise with firm productivity, and that the bulk of aggregate exports in each country are made by a small number of highly productive firms. Finally, we show that during the crisis, the growth of exports by high productive firms sustained the current account adjustment of European “stressed” economies. This last result confirms that the shape of the productivity distribution within each country can have important consequences from the point of view of the dynamics of aggregate trade patterns.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 4/2016
Testing the Validity of Assumptions of UC-ARIMA Models for Trend-Cycle Decompositions
Marian Vavra

Abstract: This article tests the validity of underlying assumptions (i.e. linearity and normality) of UC-ARIMA models for trend-cycle decompositions using macroeconomic variables from 16 OECD countries. Clear and overwhelming evidence of non-normality and non-linearity is found. Our results thus cast doubts on the adequacy of the filtered cyclical component from this type of model.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 3/2016
Export Characteristics and Output Volatility: Comparative Firm-Level Evidence for CEE Countries
Urska Cede, Bogdan Chiriacescu, Peter Harasztosi, Tibor Lalinsky, Jaanika Merikull

Abstract: The literature shows that openness to trade improves long-term growth but also that it may increase exposure to high output volatility. In this vein, our paper investigates whether exporting and export diversification at the firm level have an effect on the output volatility of firms. We use large representative firm-level databases from Estonia, Hungary, Romania, Slovakia and Slovenia over the last boom-bust cycle in 2004-2012. The results confirm that exporting is related to higher volatility at the firm level. There is also evidence that this effect increased during the Great Recession due to the large negative shocks in export markets. In contrast to the literature and empirical findings for large or advanced countries we do not find a statistically significant and consistent mitigating effect from export diversification in the Central and Eastern European countries. In addition, exporting more products or serving more markets does not
necessarily result in higher stability of firm sales.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 2/2016
Fiscal Multipliers in Slovak Economy DSGE Simulation
Juraj Zeman

Abstract: In order to calculate fiscal multipliers for Slovakia, I used a small open DSGE model of Slovakia constructed by Zeman and Senaj (2009), augmented by more sophisticated fiscal sector that comprises of government expenditure components – consumption, investment and social transfers to liquidity constrained households as well as government revenue components – personal income tax, employer social
contributions, VAT tax and lump-sum tax. The Slovak government has laid out a plan of public finance consolidation for the period from 2013 to 2017 in order to meet the Fiscal Compact criteria. According to fiscal multipliers calculated in this paper the consolidation will cause an aggregate loss of 2.5 % of GDP during this period.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 1/2016
Portmanteau Tests for Linearity of Stationary Time Series
Zacharias Psaradakis, Marian Vavra

Abstract: This paper considers the problem of testing for linearity of stationary time series. Portmanteau tests are discussed which are based on generalized correlations of residuals from a linear model (that is, autocorrelations and cross-correlations of different powers of the residuals). The finite-sample properties of the tests are assessed by means of Monte Carlo experiments. The tests are applied to 100 time series of stock returns.
Full Paper in English (PDF), Summary in Slovak (PDF)

OP 3/2015
Wage Rigidities and Jobless Recovery in Slovakia: New Survey Evidence
Peter Tóth, Katarina Vaľková

Abstract: The aim of this paper is to test the determinants of labour cost adjustments by Slovak firms during the recent recovery period from 2010 to 2013. We use a new dataset from a firm-level survey, which was conducted in cooperation with the Wage Dynamics Network of the European Central Bank. The main findings are broadly in line with macroeconomic data, such as the uneven recovery of demand across sectors, stagnation of employment and increase in wages. Our estimates highlight the importance of demand shocks in explaining labour cost adjustments. Further, the role of collective agreements and wage rigidities seems crucial, which forces firms to downsize their labour inputs rather than to cut wages. Finally, we find evidence that large and foreign owned firms face fewer barriers to adjusting their labour costs. The mentioned factors seem to be the main explanation for the recent jobless recovery in Slovakia during 2010 to 2013.
Full Paper in English (PDF), Summary in Slovak (PDF)

OP 1/2015
Short-term Forecasting of Real GDP Using Monthly Data
Juraj Huček, Alexander Karšay, Marián Vávra

Abstract: This occasional paper considers the problem of forecasting, nowcasting, and backcasting the Slovak real GDP growth rate using approximate factor models. Three different versions of approximate factor models are proposed. Forecast comparison with other models such as bridge equation models and ARMA models is also provided. Our results reveal that factor models clearly outperform an ARMA model and can compete with bridge models currently used at the Bank. Therefore, we tend to incorporate factor models into the regular forecasting process at the Bank. Finally, we hold the view that future research should be devoted to further improvements of bridge models since these models are simple to construct, easy to understand, and widely used in central banks.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 5/2015
Test For Forecast Evaluations
Marián Vávra

Abstract: We present a meta-analysis of the impact of higher capital requirements imposed by regulatory reforms on the macroeconomic activity (Basel III). The empirical evidence derived from a unique dataset of 48 primary studies indicates that there is a negative, albeit moderate GDP level effect in response to a change in the capital ratio. The effects are likely to be slightly stronger but still low for the CEECs. Meta-regression results suggest that the estimates reported in the literature tend to be systematically influenced by a selected set of study characteristics, such as econometric specifications, the authors’ affiliations, and the underlying financial system. Finally, we document a significant positive publication bias.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 4/2015
Small-scale nowcasting models of GDP for selected CESEE countries
Martin Feldkircher, Florian Huber, Josef Schreiner, Marcel Tirpák, Peter Tóth, Julia Wörz

Abstract: Based on intra-day high-frequency data, this paper investigates the effect of sterilized interventions on the Slovak koruna/euro exchange rate for different time windows during a period that coincides with Slovakia’s preparation for EU accession and euro adoption. Results confirm a significant relationship between intervention and exchange rate change. The maximum effect of intervention is reflected in the exchange rate change within a couple of hours and the effect over longer time windows weakens only gradually. The initial impact of sales interventions is stronger than that of purchase interventions.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 3/2015
Monetary Facts Revisited
Pavel Gertler, Boris Hofmann

Abstract: This paper uses a cross-country database covering 46 economies over the postwar period to revisit two key monetary facts: (i) the long-run link between money growth and ináation and (ii) the link between credit growth and Önancial crises. The analysis reveals that the former has weakened over time, while the latter has become stronger. Moreover, the money-ináation nexus has been stronger in emerging market economies than in advanced economies, while it is the other way round for the link between credit growth and Önancial crises. These results suggest that there is an inverse relationship between the two monetary facts. The money-ináation link is weaker in regimes characterised by low ináation and highly liberalised Önancial systems, while the reverse holds true for the credit-crisis nexus.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 2/2015
Are indebted households poorer? Evidence from Slovakia
Teresa Messner, Tibor Zavadil

Abstract: This paper analyses the impact of household indebtedness on household net wealth, using Slovak data from the first wave of the Household Finance and Consumption Survey. We find two different effects of household indebtedness on wealth – a highly negative impact of non-mortgage debt and a neutral effect of mortgage debt. Furthermore, we find that households living in bigger municipalities and more developed regions are both wealthier and more indebted. Finally, we ascertain that household wealth is mainly determined by income, home ownership, inheritance, household composition, the characteristics of household head, and regional demographic and economic conditions.
Full Paper in English (PDF), Summary in Slovak (PDF), Analytic Commentary in Slovak (PDF)

WP 1/2015
Testing for normality with applications
Marián Vávra

Abstract: This paper considers the problem of testing for normality of the marginal law of univariate and multivariate stationary and weakly dependent random processes using a bootstrap-based Anderson-Darling test statistic. The finite-sample properties of the test are assessed via Monte Carlo experiments. An application to the inflation forecast errors is also presented.
Full Paper in English (PDF), Summary in Slovak (PDF)

OP 1/2014
Regional differences in household wealth across Slovakia
Teresa Messner, Tibor Zavadil

Abstract: This report summarises the findings from the first wave of the Slovak Household Finance and Consumption Survey. The analysis is done at the regional level and presents results on household assets, liabilities, net wealth, income and consumption.
Full Paper in English (PDF), Summary in Slovak (PDF), Article on Biatec in English (PDF)

PP 1/2014
Macro Stress Testing Framework at the National Bank of Slovakia
Ján Klacso

Abstract: This paper describes the current macro stress testing framework at the National Bank of Slovakia. Stress testing is aimed at testing the resilience of the banking sector to negative developments on the financial markets and in the real economy. The paper describes satellite models and assumptions used in the framework. The results of back testing and the most actual results of stress testing are also presented.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 2/2014
Dual regime fiscal multipliers in converging economies – a simplified STVAR approach
Michal Benčík

Abstract: This paper assesses fiscal policy effects over the business cycle in V4 countries using a simplified smooth transition VAR (STVAR) model. The estimated parameters imply a presence of two different regimes associated with recessions and expansions, leading to different impulse-response functions. Transformation of these functions to fiscal multipliers confirms a different nature of long run effects. In expansions, the fiscal multipliers peak below unity and diminish to zero. In recession, the multipliers grow faster than in expansion and stay well above unity.
Full Paper in English (PDF), Summary in Slovak (PDF), Article on Biatec in Slovak (PDF)

WP 1/2014
Finding Yeti: More robust estimates of output gap in Slovakia
Ľudovít Ódor, Judita Jurašeková Kucserová

Abstract: Estimates of potential output and the output gap are essential elements in the toolkit of policy makers. Latest changes in the European fiscal framework have strengthened significantly the role of structural budget balances, which rest on output gap calculations. With the adoption of the Fiscal Compact new procedures are entering into force. Independent fiscal institutions are going to play an important role in triggering correction mechanisms. In our view, the new framework will be credible only if meaningful estimates of output gaps and structural budget balances are available in real time. This is a huge problem especially for small countries with short history and many structural breaks, where the estimation of output gap is more an art than a science. Very volatile estimates of output gap with weak information content can quickly undermine the credibility of independent fiscal institutions. In this working paper we critically review the current estimation techniques in Slovakia and propose a new framework to calculate more robust output gap figures. In a companion paper we deal with possible improvements in the estimation of structural budget balances.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 5/2013
To Work or Not to Work? Estimates of Labour Supply Elasticities
Zuzana Siebertová, Matúš Senaj, Norbert Švarda a Jana Valachyová

Abstract: This paper provides a microeconometric analysis of extensive margin labour supply elasticities in Slovakia. We find that a one percent increase in net wage increases the probability of economic activity by 0.263 percentage points. Taking into account tax and transfer system details valid in 2009-2011, a one percent increase in transfers decreases the semi-elasticity of labour force participation by 0.04 percentage points. These results are broadly in line with the elasticities usually reported in the literature. Our results show that low-skilled, females and the elderly are the groups that are particularly responsive to changes in taxes and transfers. Labour market policies aimed to boost employment should concentrate on increasing marginal gains to work, especially for low-educated individuals and women.
Full Paper in English (PDF), Summary in Slovak (PDF), Article on Biatec in English (PDF)

WP 4/2013
Firm competitiveness determinants: results of a panel data analysis
Tibor Lalinský

Abstract: This paper combines results of a questionnaire survey with firm level data in order to better explain firm competitiveness. To do this, survey-based information about perceived factors is used to improve explanatory power of quantitative factors. Results from the firm level panel data model confirm that most of the top individual, sector-specific and macro factors of perceived company competitiveness are statistically significant. Different size of the effect across considered competitiveness indicators (proxied by indicators of profitability, productivity, and export performance and market share) suggests that appropriate policy measures aiming at higher overall competitiveness may vary depending on preferred definition of competitiveness. From among the factors we find that perceived impact of energy costs, EU membership and developed consumer sectors count among the most influential ones.
Full Paper in English (PDF), Summary in Slovak (PDF), Article on Biatec in Slovak (PDF)

WP 3/2013
Testing for linear and Markov switching DSGE models
Marián Vávra

Abstract: This paper addresses the issue related to testing for non-linearity in economic models using new principal component based multivariate non-linearity tests. Monte Carlo results suggest that the new multivariate tests have good size and power properties even in small samples usually available in practice. The empirical results indicate that the use of linear economic models is unsuitable for policy recommendations.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 2/2013
Testing for non-linearity in multivariate stochastic processes
Marián Vávra

Abstract: Two well known multivariate non-linearity tests are modified using a principal component analysis. The Monte Carlo results show that the proposed principal component-based tests do provide a remarkable dimensionality reduction without any systematic power loss. It can be concluded that using linear dynamic economic models is in sharp contrast with our empirical findings.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 1/2013
Testing for marginal asymmetry of weakly dependent processes
Marián Vávra, Zacharias Psaradakis

Abstract: This article addresses the issue of testing for asymmetry of the marginal law of weakly dependent processes. A modified quantile-based symmetry test is considered. The test has an intuitive interpretation, it is easy and fast to calculate, follows a standard limiting distribution, and much importantly, it is robust against weak dependence of observations and outliers. The finite sample performance of the robust test is examined via Monte Carlo experiments. An empirical application using economic indicators is provided as well.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 6/2012
Inflation drivers in new EU members
Martina Alexová

Abstract: Detecting the drivers of inflation is essential in designing structural reforms aimed at complementing the main objectives of monetary policy. This paper attempts to uncover the factors causing inflation from both demand and supply side in several new members of European Union by utilizing error correction method. We found out that supply side factors have major influence on inflation. All countries are sensitive to wage development both in long and short run. Furthermore, the integration to euro area and participation in ERM II has a decreasing influence on a price level. Policy makers should pay special attention to excessive wage development as it can significantly distort price development.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 5/2012
Fiscal Space in the Euro zone
František Hajnovič, Juraj Zeman, Ján Žilinský

Abstract: Using data from 1995 to 2008, this paper derives debt limits in the European Union from the reaction of budget on debt before the crisis. Based on work of IMF (Ostry, 2010) we suggest our approach and estimate the fiscal reaction functions and the implied critical debt levels of EU governments. Since many countries did not take advantage of the boom years for consolidation, the fiscal space – availability of debt financing – in the euro zone has shrunk, especially in countries where the response to rising debt levels was weak in the past. We conclude by stressing a need for structural changes in budget policy (upper shift in the reaction on debt) or risk a default in the case when fiscal space was negative or has been squeezed.
Full Paper in English (PDF), Full Paper in Slovak (PDF)

WP 4/2012
Labor Cost Adjustment: Evidence From a Survey of Slovak Firms
Marianna Červená

Abstract: Building on a unique survey of how Slovak firms adjust wages and prices, this paper studies the reduction of labour costs in two forms: base wage cuts and alternative margins for labour cost reduction. Anecdotal evidence suggests that wage-cutting by firms occurs more frequently in Slovakia than in any other country and that the use of alternative margins for labour cost reduction is also quite prevalent in Slovakia. Regression results support the strong relationship between the use of alternative margins and wage rigidities. I find that the use of any alternative margin is on average 30% more likely in firms facing nominal wage rigidity that in firms with flexible wages.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 3/2012
Base Wage Rigidities: Evidence From a Survey of Slovak Firms
Marianna Červená

Abstract: Building on a unique survey of how Slovak firms adjust wages and prices, this paper studies the extent to which Slovak wages are rigid and the determinants for both nominal and real wage rigidity. Compared to other countries included in the survey, Slovakia has nominal base wage rigidity that is one of the highest and real base wage rigidity that is also relatively high. Apart from looking at the anecdotal evidence, I run multinomial logit regressions to capture the relationship between real wage rigidity, nominal wage rigidity, flexible wages and a number of firm-specific and institutional characteristics. Regression results suggest that the prevalent skill-level of the workforce matters: firms with mainly low-skilled blue-collar workers face lower probabilities of wage rigidities than firms with white-collar workers. Collective bargaining coverage is also a significant determinant. Firms covered by firm-level unions face higher probabilities of both types of wage rigidities compared to firms not covered by any level of collective bargaining. On the other hand, firms facing sectoral level unions have more flexible wages than those without any collective bargaining.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 2/2012
Human Capital, Consumption and Housing Wealth in Transition
Jarko Fidrmuc, Matúš Senaj

Abstract: This paper focuses on human capital and housing in Slovakia during the economic reforms of the last two decades. We compare households that entered the labour market before and after the economic reforms in 1990. On the one hand, we study the returns to education in different labour market cohorts using household consumption surveys. On the other hand, we analyse the determinants of housing wealth and its impact on consumption. We show that old cohorts are characterised by lower returns to human capital and consumption levels, but higher housing wealth. Thus, we do not identify a clear pattern of winners and losers from transition.
Full Paper in English (PDF), Summary in Slovak (PDF), Article on Biatec in Slovak (PDF)

WP 1/2012
Costs and benefits of Slovakia entering the euro area. A quantitative evaluation
Juraj Zeman

Abstract: Entering monetary union brings both benefits and costs. The loss of an independent monetary policy, including the loss of exchange rate
policy, constrains the ability to stabilize the domestic economy in the event of asymmetric shocks. This leads to more volatile business cycles and hence lower utility of risk-averse agents in the economy. On the other hand, the common currency reduces transaction costs, thus increasing trade and growth. The objective of this article is to quantitatively evaluate these costs and benefits, using an estimated two-country DSGE model for Slovakia and the euro area.
Full Paper in English (PDF), Summary in Slovak (PDF), Article on Biatec in Slovak (PDF)

WP 2/2011
European Taxes in a Laboratory
Matúš Senaj, Milan Výškrabka

Abstract: Labour tax rates are considerably heterogeneous across European countries. In this paper, we investigate the effects of a policy experiment in which the tax rates levied on labour are harmonised in the member countries of the euro area. Using a four-country DSGE model, we find that shifts in domestic tax rates are the main driver of the total outcome of the policy change while spillover effects are rather limited in the long run. Countries that decrease their total tax wedge boost their economies while countries that increase their tax wedge lose a proportion of output. The adjustment process is rather complicated: a country which gains in the long run may temporarily go through a period of dampened economic activity. The adjustment process is complicated somewhat by the fact that a country which gains in the long run may temporarily go through a period of dampened economic activity. In terms of volatility, the euro area with its homogenous labour tax system may be better prepared to face common area-wide shocks. On the other hand, shocks originating outside the euro area may increase the volatility of euro area output under the homogenous tax regime.
Full Paper in English (PDF), Summary in Slovak (PDF), Article on Biatec in Slovak (PDF)

WP 1/2011
Business cycle synchronisation between the V4 countries and the euro Area in 1996 – 2010
Michal Benčík

Abstract: Business cycle synchronisation between the V4 countries and the euro area is important in regard to the costs of the common monetary policy. This paper addresses the issue of business cycle synchronisation by directly calculating cross correlations, by calculating cross correlations from primary impulses, and finally by calculating output gap component correlations from common and country-specific shocks. In regard to the output gap, the results of all three methods are approximately the same: before 2001, the business cycles of the V4 countries were not synchronised with the euro area (low or negative correlations); between 2001 and 2007, the correlations turned positive as the V4 coun-tries joined the EU and trade between the V4 countries and the euro area in-creased; and during the economic crisis of 2008 – 2009, synchronisation in-creased still further.
Full Paper in English (PDF), Full Paper in Slovak (PDF)

WP 3/2010
The wage curve: A panel data view of labour market segments
Pavel Gertler

Abstract: The paper studies the relationship between the local unemployment rate and wage level – commonly referred to as the wage curve. Using a panel data setup for annual enterprise-level microdata, we confirm previous findings that wages in Slovakia are, on the whole, relatively flexible – with a rise in the local unemployment rate of 10 percent being associated with a drop in wages by 0.8%. We find, however, that these elasticities differ considerably across sectors, regions and, in particular, skills. Our results indicate that overall wage flexibility in the Slovak labour market is driven more by the wage flexibility of higher-skilled employees, and their broader opportunities for employment, than by the institutional arrangements of the labour market.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 2/2010
Do Unit Labor Cost Drive Inflation in the Euro Area?
Sandra Tatierská

Abstract: The purpose of this study is to analyze the relationship between unit labor costs and inflation. We estimate an optimal price path model based on a New Keynesian Phillips Curve for eleven euro area countries individually, under the assumption that unit labor costs are proportional to marginal costs. We seek such a model which minimizes the distance between fitted and actual price level fluctuations, with parameters that satisfy theoretical restrictions. The econometric methodology used is a two-step approach method. Estimates show that in eight of the eleven euro area countries there is a plausible relationship between unit labor costs and price level dynamics. The average time needed to adjust prices in line with movements in unit labor costs is estimated to be around eight months. In the case of Slovakia the results indicate rather flexible prices.
Full Paper in English (PDF), Summary in Slovak (PDF)

WP 1/2010
MUSE: Monetary Union and Slovak Economy model
Martin Filko, Štefan Kišš, Ľudovít Ódor, Matej Šiškovič

Abstract: In this paper, the Bayesian method together with the calibration approach is used to parameterise the DSGE model. We present a medium-scale two-country model. Parameters controlling the steady state of the model are calibrated in order to match the ratios of a few selected variables to their empirical counterparts. The remaining parameters are estimated via Bayesian method. Since Slovakia has been a euro area member country for only two years, the model allows switching from an autonomous monetary policy regime to a monetary union regime. This feature enables us to parameterise the model in the case of independent monetary policy and consequently to simulate the impacts of various structural shocks on the Slovak economy as a part of the monetary union. At the end of the paper, we present the impulse-response functions of the model to selected structural shocks.
Full Paper in English (PDF), Summary in Slovak (PDF)

DP 1/2010
Structural Policy Challenges in Slovakia
Martin Filko, Štefan Kišš, Ľudovít Ódor, Matej Šiškovič

Abstract: The paper presents possible approaches for measuring the quality of life together with their strengths and weaknesses. We identify 10 outcome indicators, which could help not only to set targets, but also as a quantitative benchmark for structural policy evaluation in Slovakia. In addition to that we present several case studies with best practices mainly from EU countries. Based on these we formulate 33 structural policy recommendations.
Full Paper in English (PDF), Full Paper in Slovak (PDF), Datasheet (XLS)

OP 3/2010
Business Competitiveness after Euro Adoption in Slovakia
Tibor Lalinský

Abstract: Slovak enterprises recorded significant worsening of economic and financial indicators in the time after euro adoption. Dramatic changes in the results of non-financial corporations were observed in most of the EU countries. The main driving factor was a drop in global demand. Some indicators suggest that the adoption of the euro and consequent effective exchange rate appreciation could have an additional negative effect on selected services. Decrease in price and cost competitiveness was only temporary. Tradable sector represented mainly by manufacturing seems to be sufficiently competitive. With gradual recovery of the global economy we can see a growing importance of previously identified competitiveness factors: support of research and development, education and innovations.
Full Paper in English (PDF), Full Paper in Slovak (PDF)

WP 4/2009
What Determines Borrowing Costs of EU Countries?
Ján Žilinský

Abstract: This paper finds that public debt and a range of other economic variables are surprisingly weakly correlated with sovereign spreads in EU countries. Democratic capital, on the other hand, was a powerful predictor of spread heights between 2003 and 2007, while its relevance disappeared in late 2008, when only credit ratings were correlated with the investors’ estimate of default probabilities. These results suggests that (1) institutional
characteristics may sometimes play a central role in determining borrowing costs and (2) investors attach different weights to relevant variables depending on global macroeconomic conditions.
Full Paper in English (PDF), Abstract in Slovak (PDF)

DP 2/2009
Making Fiscal Commitments Credible. Institutions for Responsible and Transparent Fiscal Policy in Slovakia
Michal Horváth, Ľudovít Ódor

Abstract: The study critically analyzes the weak points of current fiscal institutions in Slovakia, while proposing a new institutional framework. It is based on the concept of the net worth and reflects international experience. The main part of the proposal is additional fiscal rules to the Stability and Growth Pact – a gross debt limit and expenditure ceilings, new rules for the financial management of municipalities, and requirements for greater transparency. It is our proposal to set up a Fiscal Council under the National Council of the Slovak Republic, which would check and monitor fiscal processes and rules. The new framework should increase the credibility of Slovakia when looking for exit strategies following unfavourable impacts of the current economic crisis; it should also lead to lower interest rates and more dynamic and stable growth from the long-term perspective.
Full Paper in English (PDF), Full Paper in Slovak (PDF)

DP 1/2009
Effects of Monetary Policy Shocks in Slovakia
Judita Jurašeková Kucserová

Abstract: This paper presents the results of empirical investigation into Slovak monetary policy shocks’ impacts on the economy. For estimating purposes, structural VAR based impulse responses of output, prices, exchange rates and short-term interest rates on structural disturbances selected by sign restrictions are studied. In most cases, to improve the quality of monetary policy shock definition, additional identification of historical shocks is provided. As a conclusion, unanticipated 50 basis points increase of the key interest rate lowers prices by up to 0.4% against the baseline. As expected, peak response is reached about one year after the shock at the latest. However, the effect on output is conflicting, suggesting that variations in monetary policy account for little variation in output.
Full Paper in English (PDF), Abstract in Slovak (PDF)

WP 3/2009
DSGE Model – Slovakia
Juraj Zeman, Matúš Senaj

Abstract: DSGE Slovakia is a medium size New Keynesian open economy model designed to simulate dynamic behavior of Slovak economy. It consists of about 50 equations and contains all important macroeconomic variables including real GDP and all its main components- consumption, investment, government expenditures, import and export then factors of production – labor, capital and oil and also consumer, producer, import and export price deflators, nominal interest rate and exchange rate. Most parameters of the model are calibrated and remaining ones are estimated by various estimation technique. Appropriateness of the model is judged by comparing statistics of simulated data with real ones, by analyzing impulse response functions and by reproducing historical time series.
Full Paper in English (PDF), Abstract in Slovak (PDF)

PP 1/2009
Selected indicators of competitiveness: brief outline
Judita Jurašeková Kucserová, Ľudovít Ódor, Matúš Senaj, Juraj Zeman

Abstract: Competitiveness is crucial for maintaining the productivity growth and for raising the living standard, particularly in small open economies based on international trade and to a great extent dependent on foreign direct investments. According to a definition, competitiveness is the ability of a country to sell goods and services in a given market. The term also includes the overall business environment of a country, the physical and knowledge infrastructure, as well as labor market indicators and the regulation in financial markets and product and service markets. It is therefore not possible to narrow the issue of competitiveness merely to monitoring nominal exchange rate fluctuations. The aim of this policy paper is to evaluate the development of competitiveness in Slovakia, in particular in relation to the depreciating currencies of the neighboring countries.
Full Paper in English (PDF), Full Paper in Slovak (PDF)

WP 7/2008
Downward Wage Rigidities in Slovakia
Pavel Gertler, Matúš Senaj

Abstract: The concept of wage flexibility is especially important for economic policies after the Slovak euro adoption. The aim of this study is to assess the extent of wage rigidities in Slovakia. We first reproduce Holden and Wulfsberg (2007) approach with data on industrial level drawn from recent decade and we include both old and new EU Member States countries. In case of Slovakia, however it is difficult to interpret results obtained from sectoral data, since too few negative observations are present in the sample. We therefore turn to micro-approach and apply slightly modified
methodology on the company level data. The estimated extent of both nominal and real rigidity is relatively small. Conclusion that hourly compensations are rather flexible supports the decision of euro adoption in 2009.
Full Paper in English (PDF), Abstract in Slovak (PDF)

WP 6/2008
ULC Dynamics of Euro Area Countries and SR in the Long Run
Sandra Tatierská

Abstract: In this paper we analyse the ability of national unit labor costs of euro area countries to converge to the weighted average of the EMU and in the case of SR also to the weighted average of V4 countries. Co-integration between individual and average nominal ULC indices was examined through static (OLS) and dynamic (VEC) tests and estimates. We discovered a significant co-integration under an absolute convergence of the ULC for almost all countries (incl. SR) to the equilibrium, which was determined mainly by the weighted average of the euro area. In general, a significant convergence would enable different levels of nominal ULC but not long-term differences in their development, which is an important criterion for sustaining the competitiveness of a country without an exchange rate mechanism.
Full Paper in English (PDF), Full Paper in Slovak (PDF)

WP 3/2008
Competitiveness Factors of Slovak Companies
Tibor Lalinský

Abstract: This paper examines factors affecting the competitiveness of leading Slovak companies, using results obtained through a questionnaire survey. The results imply that companies are aware of the key role of consumers. By putting emphasis on production modernisation and extensive use of information and communication technologies, the companies are successful in placing their products on foreign markets, but the final customers are beyond their reach. The results confirm that the most important factors of competitiveness are intra-company factors, above all company management and cost reduction. Other factors considered to have a strong impact are the EU membership of Slovakia and energy costs. The planned adoption of the euro in Slovakia was seen as increasing competitiveness. Companies are starting to realise the need for transition to a higher level of competitiveness, one based on innovation. Among the main threats to competitiveness is the potential exacerbation of labour market imbalances.
Full Paper in English (PDF), Full Paper in Slovak (PDF)

WP 1/2008
Macro Stress Testing of the Slovak Banking Sector
Juraj Zeman, Pavol Jurča

Abstract: In this paper we estimate the impact of a simulated slowdown in the Slovak economy on the Slovak banking sector. Using a vector error correction model, the impact of the slowdown on interest rates and exchange rates is assessed. This allows us to estimate the aggregated impact of the credit risk, interest rate risk and exchange rate risk. The significance of indirect impact of interest rate risk and foreign exchange risk via possible worsening of financial situation of debtors has also been considered. The results suggest that even significant slowdown of the GDP growth would not substantially threaten the Slovak banking sector provided that the response of the monetary policy would be adequate. Given the current portfolio of the Slovak banking sector, this monetary policy would have positive impact on Slovak banking sector also by direct increase of real value of this portfolio, mainly through the interest rate channel. The shocks in GDP growth that would be left without relevant response in other factors might represent more noticeable threat.
Full Paper in English (PDF), Abstract in Slovak (PDF)

PP 1/2006
The Effects of Euro Adoption on the Slovak Economy
Šuster, Árendáš, Benčík, Gertler, Hajnovič, Komínková, Lalinský, Nemec, Preisinger, Solanič, Strachotová, Tirpák, Tőzsér, Zeman

Full Paper in English (PDF), Full Paper in Slovak (PDF)