Filip Novotny - Academia.edu (original) (raw)
Papers by Filip Novotny
ACTA VŠFS, 2008
One of the approaches to an international trade analysis is the assumption of prevailing imperfec... more One of the approaches to an international trade analysis is the assumption of prevailing imperfect competition where monopolistic firms determine prices of their production on segmented foreign markets. Based on aggregate data of quarterly financial indicators of non-financial enterprises, the hypothesis was tested whether producers based in the Czech Republic absorb nominal exchange rate fluctuations in their profit margins. Estimated results indicate that domestic private firms absorb a substantial part of exchange rate fluctuations whereas the impact on firms under foreign control is ambiguous which implies application of optimization strategies in the case of multinational companies. These strategies are associated with pricing of intrafirm transactions. Tax optimization of multinational companies causes the dependence of the profitability of firms under foreign control on the level of effective taxation in EU countries. Both local-currency-pricing strategy (domestic private fir...
EDITORIAL IN THIS ISSUE Macroeconomic forecasting has traditionally been at the centre of the nat... more EDITORIAL IN THIS ISSUE Macroeconomic forecasting has traditionally been at the centre of the national central bank's attention. Indeed, macroeconomic forecasts are essential in the implementation and communication of monetary policy. This edition of the Research Bulletin is devoted to selected recent CNB staff publications evaluating forecasting methods, forecast accuracy and forecast coordination. The first article performs an empirical investigation of the accuracy of Czech quarterly GDP forecasts of various models which extract information from the available monthly indicators. The forecast performance of the eight models is compared mutually and with the historical near-term forecasts of the CNB's staff. The second article assesses the practical usability of Bayesian fan charts for the purposes of CNB forecast evaluation and financial stability stress testing. The third article evaluates the accuracy of Consensus Economics forecasts by comparison with the alternative forecasts including those of international organisations. Furthermore, the impact of the recent crisis on forecast performance is investigated. The last article analyses the extent to which private analysts coordinate their forecasts with those produced by the Czech National Bank, and whether such coordination changes over time. Jan Babecký Short-Term Forecasting of Czech Quarterly GDP Using Monthly Indicators The accuracy of GDP forecasts is of key importance for the conduct of monetary policy. In the present study we evaluate the out-of-sample forecast accuracy of Czech quarterly GDP exploring early information available in monthly indicators. Employing eight different models, we find the one which is the most precise up to three quarters ahead. However, the CNB staff forecasts turn out to be the most accurate one quarter ahead. Kateřina Arnoštová, David Havrlant, Luboš Růžička and Peter Tóth (on page 2) Are Bayesian Fan Charts Useful for Central Banks? Uncertainty, Forecasting and Financial Stability Stress Tests Fan charts have become an important tool to communicate uncertainty in inflation-targeting central banks. Our research shows how so-called Bayesian fan charts may be useful to complement the fan charts based on past forecasting errors and how we can use them to quantitatively evaluate to what extent the assumptions for macroeconomic scenarios in stress tests of the banking sector are sufficiently adverse. Michal Franta, Jozef Baruník, Roman Horváth and Kateřina Šmídková (on page 6) Assessment of Consensus Forecasts Accuracy: The Czech National Bank Perspective Consensus Economics forecasts are used by the Czech National Bank to make assumptions about future external economic developments. We therefore compare the predictive accuracy of the Consensus forecasts with the available alternatives. The main conclusion is that Consensus forecasts beat the alternative forecasts by a difference which is typically statistically significant. Filip Novotný and Marie Duršpek Raková (on page 10) Central Bank Forecasts as a Coordination Device Do private analysts coordinate their forecasts via central bank forecasts? We examine the coordination of private and central bank forecasts for the Czech Republic and find that private forecasters use the CNB forecast to coordinate the interest rate and inflation forecasts. The coordination tends to be stronger during times of high uncertainty. Improvements in CNB forecast communication, in particular the publishing of an interest rate forecast, have enhanced the coordination.
Related works: Book: Analyses of the Czech Republic's Current Economic Alignment wit... more Related works: Book: Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2005 (2005) Book: Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2008 (2008) Book: Analyses of the Czech Republic's Current ...
Inflation in the euro area exceeded 2% in several months of last year due to higher growth in ene... more Inflation in the euro area exceeded 2% in several months of last year due to higher growth in energy prices. However, core inflation remains at levels which are relatively muted by historical standards and which do not guarantee that the ECB's inflation target will be achieved after the current contribution of energy prices unwinds. The main reason for the subdued underlying inflation pressures is the prolonged period of low wage growth. The relationship between wage growth and core inflation still appears to hold across the euro area countries, so one can expect stronger inflation pressures to emerge in the euro area only after wage growth accelerates. As core inflation in the euro area is very persistent, it is unlikely that it will increase sharply and abruptly. Convergence of inflation rates close to 2% even after the contribution of energy prices fades out is being supported by the ECB. It ended its net asset purchase programme at the end of 2018, but its monetary policy st...
![Research paper thumbnail of Vliv zhodnocení koruny na český podnikový sektor [Effect of czech crown appreciation on czech corporate sector]](https://attachments.academia-assets.com/80153987/thumbnails/1.jpg)
](Politicka Ekonomie, 2003
The Czech economy was characterized by a high nominal and real appreciation which was caused by g... more The Czech economy was characterized by a high nominal and real appreciation which was caused by great foreign direct investment inflow in 2002. The paper analyzes the effect of the Czech currency appreciation on industrial branches and the industry as a whole using a simple model based on a corporate accounting. The outcome of the model is then compared with actual y-o-y data of non-financial corporations in 2002. There is significant difference between industrial branches in sensitivity to appreciation. Foreign owned branches are able to limit the negative impact of appreciation, whereas the worst situation is in branches owed only by residents and public. The property structure and in addition the labor intensity of production have had a great effect on corporate finance after the rapid crown appreciation.
We propose an approach to nowcasting foreign GDP growth rates for the Czech economy. For presenta... more We propose an approach to nowcasting foreign GDP growth rates for the Czech economy. For presentational purposes, we focus on three major trading partners: Germany, Slovakia and France. We opt for a simple method which is very general and which has proved successful in the literature: the method based on bridge equation models. A battery of models is evaluated based on a pseudo-real-time forecasting exercise. The results for Germany and France suggest that the models are more successful at backcasting, nowcasting and forecasting than the naive random walk benchmark model. At the same time, the various models considered are more or less successful depending on the forecast horizon. On the other hand, the results for Slovakia are less convincing, possibly due to the stability of the GDP growth rate over the evaluation period and the weak relationship between GDP growth rates and monthly indicators in the training sample.
Politická ekonomie, 2008
If taxes are the same across countries and no tariffs are imposed on international trade, the opt... more If taxes are the same across countries and no tariffs are imposed on international trade, the optimal strategy of a multinational firm is to set transfer prices at marginal costs of its affiliated firms. But in reality we observe trade tariffs and tax differences among countries which lead multinational firms to deviate transfer prices from marginal costs. Multinationals use transfer prices in order to increase profits in affiliates which are located in low tax countries at the expense of affiliates which are located in high tax countries. I demonstrate on a sample of EU countries that the lower the tax rate in a country the higher the profitability of foreign direct investment in that country. As some studies suggest the gross value added and export prices are artificially overvalued in low tax countries and artificially undervalued in high tax countries.
The effects of nominal exchange rate fluctuations on profitability of domestic private firms and ... more The effects of nominal exchange rate fluctuations on profitability of domestic private firms and foreign-owned firms which operate in the Czech Republic are separately examined in the period from 1998 to 2006. We find out that exchange rate changes have diverse effects on the two sectors. Specifically, domestic private firms absorb exchange rate changes in their profit margins while foreignowned firms are resistant against exchange rate changes. We ascribe the resistance of foreign-owned firms to transfer pricing strategies of multinationals. One determinant of a multinational company price strategy is different taxation in countries of its operation. That is the reason for concentration of gross profits in low taxed countries by manipulating intrafirm prices. As a result these optimization strategies have adverse effects on a macroeconomic level causing ineffectiveness of the exchange rate adjustment mechanism and distortions in both foreign trade and GDP statistics.
Prague Economic Papers, 2012
Growth in the intensity of the inverse relationship between the US dollar exchange rate and the B... more Growth in the intensity of the inverse relationship between the US dollar exchange rate and the Brent crude oil price has been observed over the last decade. This may be linked, among other things, to the growing role of commodities as an alternative investment instrument at times of excess liquidity and low interest rates on global markets. This analysis examines monthly data from January 1982 to September 2010. Since 2002 the direction of the relationship in the Granger causality sense has been from the dollar exchange rate to the oil price. A weakening of the dollar of 1% causes the Brent oil price to rise by 2.1%. The contrary movements in the Brent oil price and the dollar exchange rate are a factor dampening the impact of sharp fl uctuations in the dollar price of oil on "non-dollar" economies, including the Czech Republic. This dampening effect was clearly visible in the period of sharp oil price growth in 2007 and 2008.
The Czech economy was characterized by a high nominal and real appreciation which was caused by g... more The Czech economy was characterized by a high nominal and real appreciation which was caused by great foreign direct investment inflow in 2002. The paper analyzes the effect of the Czech currency appreciation on industrial branches and the industry as a whole using a simple model based on a corporate accounting. The outcome of the model is then compared with
The Czech economy has been characterized by a rapidly increasing external income balance deficit ... more The Czech economy has been characterized by a rapidly increasing external income balance deficit since 1998, which was caused by an increasing outflow of FDI earnings. The paper analyses factors, which determine the total amount of FDI earnings in a host economy and their subsequent division into reinvested earnings and repatriated profits. Three main factors are examined: total FDI stock
If taxes are the same across countries and no tariffs are imposed on international trade, the opt... more If taxes are the same across countries and no tariffs are imposed on international trade, the optimal strategy of a multinational firm is to set transfer prices at marginal costs of its affiliated firms. But in reality we observe trade tariffs and tax differences among countries which lead multinational firms to deviate transfer prices from marginal costs. Multinationals use transfer
This paper compares the accuracy of the Consensus forecasts for euro-area GDP growth, consumer an... more This paper compares the accuracy of the Consensus forecasts for euro-area GDP growth, consumer and producer price inflation, and the USD/EUR exchange rate to those of the European Commission, International Monetary Fund, and Organization for Economic Co-operation and Development, and also to the naive forecast and the forecast implied by the forward exchange rate. In the period from 1994 to
Economic Change and Restructuring, 2008
In this paper we test competing hypotheses about the shape of the timeprofile of foreign direct i... more In this paper we test competing hypotheses about the shape of the timeprofile of foreign direct investment profitability on a panel of countries. Using partial linearization method we derive the time-profile of the cumulative profitability for the stock of direct investment from aggregate macroeconomic data. By testing the non-linearity hypothesis of the cumulative profitability life-cycle of direct investment we find a cubic curve.
Macroeconomic forecasting has traditionally been at the centre of the national central bank's att... more Macroeconomic forecasting has traditionally been at the centre of the national central bank's attention. Indeed, macroeconomic forecasts are essential in the implementation and communication of monetary policy. This edition of the Research Bulletin is devoted to selected recent CNB staff publications evaluating forecasting methods, forecast accuracy and forecast coordination. The first article performs an empirical investigation of the accuracy of Czech quarterly GDP forecasts of various models which extract information from the available monthly indicators. The forecast performance of the eight models is compared mutually and with the historical near-term forecasts of the CNB's staff. The second article assesses the practical usability of Bayesian fan charts for the purposes of CNB forecast evaluation and financial stability stress testing. The third article evaluates the accuracy of Consensus Economics forecasts by comparison with the alternative forecasts including those of international organisations. Furthermore, the impact of the recent crisis on forecast performance is investigated. The last article analyses the extent to which private analysts coordinate their forecasts with those produced by the Czech National Bank, and whether such coordination changes over time.
ACTA VŠFS, 2008
One of the approaches to an international trade analysis is the assumption of prevailing imperfec... more One of the approaches to an international trade analysis is the assumption of prevailing imperfect competition where monopolistic firms determine prices of their production on segmented foreign markets. Based on aggregate data of quarterly financial indicators of non-financial enterprises, the hypothesis was tested whether producers based in the Czech Republic absorb nominal exchange rate fluctuations in their profit margins. Estimated results indicate that domestic private firms absorb a substantial part of exchange rate fluctuations whereas the impact on firms under foreign control is ambiguous which implies application of optimization strategies in the case of multinational companies. These strategies are associated with pricing of intrafirm transactions. Tax optimization of multinational companies causes the dependence of the profitability of firms under foreign control on the level of effective taxation in EU countries. Both local-currency-pricing strategy (domestic private fir...
EDITORIAL IN THIS ISSUE Macroeconomic forecasting has traditionally been at the centre of the nat... more EDITORIAL IN THIS ISSUE Macroeconomic forecasting has traditionally been at the centre of the national central bank's attention. Indeed, macroeconomic forecasts are essential in the implementation and communication of monetary policy. This edition of the Research Bulletin is devoted to selected recent CNB staff publications evaluating forecasting methods, forecast accuracy and forecast coordination. The first article performs an empirical investigation of the accuracy of Czech quarterly GDP forecasts of various models which extract information from the available monthly indicators. The forecast performance of the eight models is compared mutually and with the historical near-term forecasts of the CNB's staff. The second article assesses the practical usability of Bayesian fan charts for the purposes of CNB forecast evaluation and financial stability stress testing. The third article evaluates the accuracy of Consensus Economics forecasts by comparison with the alternative forecasts including those of international organisations. Furthermore, the impact of the recent crisis on forecast performance is investigated. The last article analyses the extent to which private analysts coordinate their forecasts with those produced by the Czech National Bank, and whether such coordination changes over time. Jan Babecký Short-Term Forecasting of Czech Quarterly GDP Using Monthly Indicators The accuracy of GDP forecasts is of key importance for the conduct of monetary policy. In the present study we evaluate the out-of-sample forecast accuracy of Czech quarterly GDP exploring early information available in monthly indicators. Employing eight different models, we find the one which is the most precise up to three quarters ahead. However, the CNB staff forecasts turn out to be the most accurate one quarter ahead. Kateřina Arnoštová, David Havrlant, Luboš Růžička and Peter Tóth (on page 2) Are Bayesian Fan Charts Useful for Central Banks? Uncertainty, Forecasting and Financial Stability Stress Tests Fan charts have become an important tool to communicate uncertainty in inflation-targeting central banks. Our research shows how so-called Bayesian fan charts may be useful to complement the fan charts based on past forecasting errors and how we can use them to quantitatively evaluate to what extent the assumptions for macroeconomic scenarios in stress tests of the banking sector are sufficiently adverse. Michal Franta, Jozef Baruník, Roman Horváth and Kateřina Šmídková (on page 6) Assessment of Consensus Forecasts Accuracy: The Czech National Bank Perspective Consensus Economics forecasts are used by the Czech National Bank to make assumptions about future external economic developments. We therefore compare the predictive accuracy of the Consensus forecasts with the available alternatives. The main conclusion is that Consensus forecasts beat the alternative forecasts by a difference which is typically statistically significant. Filip Novotný and Marie Duršpek Raková (on page 10) Central Bank Forecasts as a Coordination Device Do private analysts coordinate their forecasts via central bank forecasts? We examine the coordination of private and central bank forecasts for the Czech Republic and find that private forecasters use the CNB forecast to coordinate the interest rate and inflation forecasts. The coordination tends to be stronger during times of high uncertainty. Improvements in CNB forecast communication, in particular the publishing of an interest rate forecast, have enhanced the coordination.
Related works: Book: Analyses of the Czech Republic's Current Economic Alignment wit... more Related works: Book: Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2005 (2005) Book: Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2008 (2008) Book: Analyses of the Czech Republic's Current ...
Inflation in the euro area exceeded 2% in several months of last year due to higher growth in ene... more Inflation in the euro area exceeded 2% in several months of last year due to higher growth in energy prices. However, core inflation remains at levels which are relatively muted by historical standards and which do not guarantee that the ECB's inflation target will be achieved after the current contribution of energy prices unwinds. The main reason for the subdued underlying inflation pressures is the prolonged period of low wage growth. The relationship between wage growth and core inflation still appears to hold across the euro area countries, so one can expect stronger inflation pressures to emerge in the euro area only after wage growth accelerates. As core inflation in the euro area is very persistent, it is unlikely that it will increase sharply and abruptly. Convergence of inflation rates close to 2% even after the contribution of energy prices fades out is being supported by the ECB. It ended its net asset purchase programme at the end of 2018, but its monetary policy st...
Politicka Ekonomie, 2003
The Czech economy was characterized by a high nominal and real appreciation which was caused by g... more The Czech economy was characterized by a high nominal and real appreciation which was caused by great foreign direct investment inflow in 2002. The paper analyzes the effect of the Czech currency appreciation on industrial branches and the industry as a whole using a simple model based on a corporate accounting. The outcome of the model is then compared with actual y-o-y data of non-financial corporations in 2002. There is significant difference between industrial branches in sensitivity to appreciation. Foreign owned branches are able to limit the negative impact of appreciation, whereas the worst situation is in branches owed only by residents and public. The property structure and in addition the labor intensity of production have had a great effect on corporate finance after the rapid crown appreciation.
We propose an approach to nowcasting foreign GDP growth rates for the Czech economy. For presenta... more We propose an approach to nowcasting foreign GDP growth rates for the Czech economy. For presentational purposes, we focus on three major trading partners: Germany, Slovakia and France. We opt for a simple method which is very general and which has proved successful in the literature: the method based on bridge equation models. A battery of models is evaluated based on a pseudo-real-time forecasting exercise. The results for Germany and France suggest that the models are more successful at backcasting, nowcasting and forecasting than the naive random walk benchmark model. At the same time, the various models considered are more or less successful depending on the forecast horizon. On the other hand, the results for Slovakia are less convincing, possibly due to the stability of the GDP growth rate over the evaluation period and the weak relationship between GDP growth rates and monthly indicators in the training sample.
Politická ekonomie, 2008
If taxes are the same across countries and no tariffs are imposed on international trade, the opt... more If taxes are the same across countries and no tariffs are imposed on international trade, the optimal strategy of a multinational firm is to set transfer prices at marginal costs of its affiliated firms. But in reality we observe trade tariffs and tax differences among countries which lead multinational firms to deviate transfer prices from marginal costs. Multinationals use transfer prices in order to increase profits in affiliates which are located in low tax countries at the expense of affiliates which are located in high tax countries. I demonstrate on a sample of EU countries that the lower the tax rate in a country the higher the profitability of foreign direct investment in that country. As some studies suggest the gross value added and export prices are artificially overvalued in low tax countries and artificially undervalued in high tax countries.
The effects of nominal exchange rate fluctuations on profitability of domestic private firms and ... more The effects of nominal exchange rate fluctuations on profitability of domestic private firms and foreign-owned firms which operate in the Czech Republic are separately examined in the period from 1998 to 2006. We find out that exchange rate changes have diverse effects on the two sectors. Specifically, domestic private firms absorb exchange rate changes in their profit margins while foreignowned firms are resistant against exchange rate changes. We ascribe the resistance of foreign-owned firms to transfer pricing strategies of multinationals. One determinant of a multinational company price strategy is different taxation in countries of its operation. That is the reason for concentration of gross profits in low taxed countries by manipulating intrafirm prices. As a result these optimization strategies have adverse effects on a macroeconomic level causing ineffectiveness of the exchange rate adjustment mechanism and distortions in both foreign trade and GDP statistics.
Prague Economic Papers, 2012
Growth in the intensity of the inverse relationship between the US dollar exchange rate and the B... more Growth in the intensity of the inverse relationship between the US dollar exchange rate and the Brent crude oil price has been observed over the last decade. This may be linked, among other things, to the growing role of commodities as an alternative investment instrument at times of excess liquidity and low interest rates on global markets. This analysis examines monthly data from January 1982 to September 2010. Since 2002 the direction of the relationship in the Granger causality sense has been from the dollar exchange rate to the oil price. A weakening of the dollar of 1% causes the Brent oil price to rise by 2.1%. The contrary movements in the Brent oil price and the dollar exchange rate are a factor dampening the impact of sharp fl uctuations in the dollar price of oil on "non-dollar" economies, including the Czech Republic. This dampening effect was clearly visible in the period of sharp oil price growth in 2007 and 2008.
The Czech economy was characterized by a high nominal and real appreciation which was caused by g... more The Czech economy was characterized by a high nominal and real appreciation which was caused by great foreign direct investment inflow in 2002. The paper analyzes the effect of the Czech currency appreciation on industrial branches and the industry as a whole using a simple model based on a corporate accounting. The outcome of the model is then compared with
The Czech economy has been characterized by a rapidly increasing external income balance deficit ... more The Czech economy has been characterized by a rapidly increasing external income balance deficit since 1998, which was caused by an increasing outflow of FDI earnings. The paper analyses factors, which determine the total amount of FDI earnings in a host economy and their subsequent division into reinvested earnings and repatriated profits. Three main factors are examined: total FDI stock
If taxes are the same across countries and no tariffs are imposed on international trade, the opt... more If taxes are the same across countries and no tariffs are imposed on international trade, the optimal strategy of a multinational firm is to set transfer prices at marginal costs of its affiliated firms. But in reality we observe trade tariffs and tax differences among countries which lead multinational firms to deviate transfer prices from marginal costs. Multinationals use transfer
This paper compares the accuracy of the Consensus forecasts for euro-area GDP growth, consumer an... more This paper compares the accuracy of the Consensus forecasts for euro-area GDP growth, consumer and producer price inflation, and the USD/EUR exchange rate to those of the European Commission, International Monetary Fund, and Organization for Economic Co-operation and Development, and also to the naive forecast and the forecast implied by the forward exchange rate. In the period from 1994 to
Economic Change and Restructuring, 2008
In this paper we test competing hypotheses about the shape of the timeprofile of foreign direct i... more In this paper we test competing hypotheses about the shape of the timeprofile of foreign direct investment profitability on a panel of countries. Using partial linearization method we derive the time-profile of the cumulative profitability for the stock of direct investment from aggregate macroeconomic data. By testing the non-linearity hypothesis of the cumulative profitability life-cycle of direct investment we find a cubic curve.
Macroeconomic forecasting has traditionally been at the centre of the national central bank's att... more Macroeconomic forecasting has traditionally been at the centre of the national central bank's attention. Indeed, macroeconomic forecasts are essential in the implementation and communication of monetary policy. This edition of the Research Bulletin is devoted to selected recent CNB staff publications evaluating forecasting methods, forecast accuracy and forecast coordination. The first article performs an empirical investigation of the accuracy of Czech quarterly GDP forecasts of various models which extract information from the available monthly indicators. The forecast performance of the eight models is compared mutually and with the historical near-term forecasts of the CNB's staff. The second article assesses the practical usability of Bayesian fan charts for the purposes of CNB forecast evaluation and financial stability stress testing. The third article evaluates the accuracy of Consensus Economics forecasts by comparison with the alternative forecasts including those of international organisations. Furthermore, the impact of the recent crisis on forecast performance is investigated. The last article analyses the extent to which private analysts coordinate their forecasts with those produced by the Czech National Bank, and whether such coordination changes over time.