Czech Koruna Research Articles

The uncovered parity properties of the czech koruna

The paper studies the compliance of the CZK - EUR exchange rate with the uncovered parity of returns on assets denominated in the two named currencies. A comparison with the same property for the euro-dollar rate is made. An uncovered total return parity (UTRP) formula is derived from the equilibrium in a portfolio optimization model with liquidity constraints. It is shown that the uncovered parity of total returns, and not of short-term money market rates, is a natural outcome of stochastic equilibrium asset pricing models that generalize the International Consumption-based Capital Asset Pricing Model. Accordingly, the traditional uncovered interest rate parity should be replaced by UTRP in empirical analysis. UTRP tests for the CZK/EUR and the USD/EMU currency pairs are conducted using yields of long-term government bond yields. UTRP typically holds, although the time horizons and measures of exchange rate movements, for which it becomes visible, may vary.

Cointegration and predictability in prereform east European black-market exchange rates

This paper examines the time series properties of the monthly black-market dollar exchange rates of the Bulgarian lev, Czech koruna, East German mark, Hungarian forint, Polish zloty, Rumanian lei and Soviet ruble over the period 1955–1990. All series other than the mark exhibit a unit root in logarithms, and there is evidence of at least two cointegrating vectors linking the remaining rates. Weak exogeneity is rejected for the lev, forint and lei, but strong exogeneity cannot be rejected for the koruna, zloty and ruble, implying causality running from the latter group to the former group, which may be interpreted as reflecting channels of policy interdependence.

A small continuous time macro-econometric model of the Czech Republic

In this paper we estimate a continuous time macro-econometric model of the Czech economy. The model is built as a system of twelve non-linear differential equations. We illustrate how the model can be used to determine the nominal equilibrium exchange rate of the Czech koruna in a macro-economic framework. The paper also investigates the effectiveness of monetary and fiscal policies in the presence of a fixed exchange rate regime and massive capital inflows. The search for an equilibrium path is outlined and stability and sensitivity analyses are provided, along with in-sample static and dynamic predictions with the approximate discrete analogue.

Czech Koruna and Polish Zloty: Spot and Currency Option Volatility Patterns

Exchange rate flexibility has facilitated an impressively fast insertion of the Czech koruna and the Polish zloty into the global currency market. However, exchange rate volatility patterns differ: Lower volatility is observed for the koruna against the euro relative to the U.S. dollar, while the opposite is true for the zloty, apparently related to earlier financial integration of the Czech Republic with Europe and early dollarization in Poland as a result of initial higher inflation rates. By contrast, the currency options market shows enhanced information content of both currencies against the euro reflected in the behavior of their implied volatility.

Czech Koruna and Polish Zloty: Spot and Currency Option Volatility Patterns

Exchange rate flexibility has facilitated an impressively fast insertion of the Czech koruna and the Polish zloty into the global currency market. However, exchange rate volatility patterns differ: Lower volatility is observed for the koruna against the euro relative to the U.S. dollar, while the opposite is true for the zloty, apparently related to earlier financial integration of the Czech Republic with Europe and early dollarization in Poland as a result of initial higher inflation rates. By contrast, the currency options market shows enhanced information content of both currencies against the euro reflected in the behavior of their implied volatility.

Official Foreign Exchange Interventions in the Czech Republic: Did They Matter?

This paper studies the impact of daily official foreign exchange interventions on the Czech koruna's exchange rate vis-a-vis the euro (German mark prior to 1999) from 1997 to 2002. Using both the event study methodology and a variety of GARCH models reveal that central bank interventions, especially koruna purchases were fairly ineffective from 1997 to mid-1998 compared to the size of the interventions. However, from mid-1998 to 2002, koruna sales were surprisingly effective in either smoothing the path of the exchange rate or even reversing the appreciating trend up to 60 days. Higher volatility triggered koruna purchases in the period from 1997 to mid-1998, which in turn leads to higher volatility. This suggests that the CNB tried in vain to calm the markets after the currency crisis. Koruna sales simply yield more forex rate volatility, a by-product of the monetary authorities' efforts to counter excessive appreciation

Czech Koruna and Polish Zloty Currency Options: Information Contnent and Eu-Accession Implications

Currency option implied volatility predicts more efficiently exchange rate volatility for the Polish zloty relative to the Czech koruna, reflecting differences in the frequency of central bank intervention in the foreign exchange market. A GARCH model shows a positive impact of the introduction of the Euro on exchange rate volatility for the Polish zloty (negative for the Czech koruna), related to its larger exposure to external shocks. For countries in transition to Euro integration, the implied trade-off between isolation from shocks and efficient signaling must be addressed based on the risk of exchange rate misalignment at the time of monetary conversion.

Czech Koruna and Polish Zloty Currency Options: Information Content and Eu-Accession Implications

Currency option implied volatility predicts more efficiently exchange rate volatility for the Polish zloty relative to the Czech koruna, reflecting differences in the frequency of central bank intervention in the foreign exchange market. A GARCH model shows a positive impact of the introduction of the Euro on exchange rate volatility for the Polish zloty (negative for the Czech koruna), related to its larger exposure to external shocks. For countries in transition to Euro integration, the implied trade-off between isolation from shocks and efficient signaling must be addressed based on the risk of exchange rate misalignment at the time of monetary conversion.

A cost–benefit analysis of BCG revaccination in the Czech Republic

We assessed the direct and indirect economic costs and benefits of the current policy of revaccinating tuberculin-negative schoolchildren in the Czech Republic. The analysis is conducted from the perspective of the payer for health care. In considering whether revaccination should be discontinued, we consistently made assumptions which tend to favor revaccination. The direct costs of revaccination are estimated at Czech Koruna (KCR) 15.0 million (US$0.46 million) annually. The direct benefits are the treatment costs saved for future cases averted by revaccination. These range from KCR 0.5 million (US$0.015 million, ambulatory care, excluding transmission benefits) to KCR 13.7 million (US$0.4 million, hospitalization, including transmission benefits). Costs exceed benefits even if children are revaccinated without prior tuberculin testing. The major indirect cost is the loss of work output attributable to tuberculosis morbidity. Counting the averted loss in output as a benefit does not change the results qualitatively, although there is a 50% chance that the benefits will be greater than costs if treatment continues to be hospital-based. Thus, the costs of revaccination in the Czech Republic are found to exceed benefits over most, plausible variations in parameter values. The cost–benefit ratio is especially large if patients are given ambulatory treatment, as recommended by the World Health Organization.

The Reaction of Residents and Nonresidents to the Widening of the Intervention Band of the Czech Koruna

The biggest change in the interbank currency market in the first months of 1996 was the announcement by the Czech National Bank [CNB] that the Czech koruna [Kc] would be allowed to fluctuate within a broader range than had been permitted previously. The Kc could thus vary in relation to the DEM and the USD within +/-7.5 percent instead of the +1-0.5 percent permitted previously. In this way, the CNB created the future ability to allow the revaluation or devaluation of the koruna within wide margins in relation to several hard currencies. When using the +/-7.5 percent floating rate, the volatility of the Kc in relation to the DEM and the USD could be greater than the interest differential between the Kc and the DEM or the USD. If we take into consideration that the interest differential between the Kc and the DEM and the USD is between 4 percent and 7 percent, then the widening of the intervention rates should reduce short-term capital inflows. Foreign investors place short-term capital in the Czech Republic [CR] for short periods of time, usually for three to six months at a time. If, during this period of time, there is no revaluation or devaluation of

Conditional variance and fluctuation band

The exchange rate of the Czech koruna pegged to a currency basket is analyzed. The change of value of the basket is measured by its index. The central point of the analysis is how the change in the fluctuation band of the index affected volatility of the exchange rate. By allowing for a wider fluctuation band, the CNB let the exchange rate fluctuate more freely, thus reducing its potential nominal stability. Because of the fact that the currency basket was introduced to keep a relatively stable nominal exchange rate and to limit its volatility, a further implication is that allowing for a wider fluctuation band should lead to more pronounced movements and increased volatility of the koruna. The results of the analysis clearly indicate that allowing for a wider fluctuation band resulted in a decrease in volatility of the key currencies (DEM and USD). The other two currencies (CHF and FRF) exhibit different behavior that suggests increased volatility after the narrow fluctuation band was abolished.