Work detail

Impacts of the Euro Adoption in the Czech Republic

Author: Mgr. David Svačina
Year: 2015 - summer
Leaders: Ing. Aleš Maršál M.A.
Work type: Economic Theory
Language: English
Pages: 255
Awards and prizes:
Abstract: DSGE models are as structural models capable of estimating what would have happened if some part of
economy or shocks to it had been different. We consider three such differences in the recent Czech
history: no financial shocks during the crisis in 2008-2009; eurozone membership during the crisis in
2008-2009; and no foreign exchange interventions of the Czech National Bank in November 2013. For
this purpose, we employ a small open economy DSGE model with financial frictions and estimate it
with Bayesian inference. Our results show that impact of financial shocks on GDP growth was
negligible. Further, eurozone membership would have made crisis more severe; GDP growth in 2009Q1
would have been -6% instead of -3% and economy would have been in deflation for the five consecutive
periods. Difference is explained by strong depreciation of exchange rate during crisis that would not
have occurred with the fixed exchange rate. Lastly, the Czech National Banks's foreign exchange
interventions increased GDP growth by as much as 0.8 percentage point and saved economy from
deflation in all following quarters. They worked through depreciation of exchange rate and consequent
improvement in trade balance and increase in price of imported goods.




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