Principal researcher

Martin Mandel

Members of the working group

Josef Arlt, Martin Mandel, Luboš Marek, Roman Horváth, Marek Rusnak

The research objectives

Microeconomic and macroeconomic aspects of interest rates behavior are the part of standard economic research in world literature. Interest rate together with exchange rate is a key economical price that influences behavior of economic agents. Instead of natural market factors, key role in its determination is played by central bank. In real world interest rate takes many concrete forms – interest rate on interbank market, deposit rate, lending rate, government and private bond yield etc. Our research will be focused on following fields. First of all, an examination of yield curve’s predictability in the field of future interest rates and inflation. Second, a research of main links among interest rates in central bank’s monetary policy interest rate transmission mechanism with special accent on comparison transmission effectiveness in a period of economic growth and economic (financial) crisis. Third, an examination of exchange rate and interest rate interactions in uncovered interest rate parity with special attention on effectiveness of transmission of central bank’s main policy rate (repo rate) to exchange rate (for example in case of endogenous risk premium, smooth changes of central bank’s repo rate). Fourth, a theoretical and empirical research of so called equilibrium (natural) interest rate where the main task is to document that “equilibrium” interest rate is a model conditioned concept and therefore substantially differentiated in quantitative level.

Using econometric analysis it was possible to analyze interest rate behavior, yield curve predictive power, and function of interest rate transmission mechanism in the case of the Czech realities only in relatively short time period (CNB started to use interest rate transmission mechanism in 1997 and 1998 respectively). The fact that our research will be able to involve dynamics of interest rate during economic crisis and to compare it with a period of economic growth is a crucial one for us. In longer time period it will also be possible to study a development of a dependency (endogeneity) of home interest rates in a relationship with surrounding markets (especially in relationship with EMU) in better way.

In theoretical part of the research it is accented an economic model formulation with respect to specifics of small open economy (for example problem of endogeneity of interest rates in interest rate transmission mechanism with respect to main policy rates of ECB). Empirical analysis can be based on well available data sets of CNB, CSO, ECB and IMF. Many time series are even available in daily frequency, generally in monthly and quarterly frequency. Empirical analysis will be focused on a problem of time series stationarity. In the next step econometric and statistical methods will be applied with both stationary and non-stationary time series (with the same level of integration). The research will especially be focused on the Czech data and realities. In individual cases a comparative analysis with EMU countries and transition economies will be implemented.

Year 1

Collection of data and facts about the Czech financial system. Collection and initial statistical processing of time series of interest rates, exchange rates and other economic variables needed for the research. Study of current research literature.

Year 2

First version of studies about yield curve and uncovered interest rate parity. Discussion of the first results of the research in a team of researches. Presentation of the results at home and foreign research conferences.

Year 3

Sending research articles to opponent proceedings in journal with positive impact factor and final text edition according results of opponent proceedings. Study of a background and collection of data in an area of interest rate transmission mechanism. Study of a literature in a field of equilibrium interest rate.

Year 4

The first version of papers on interest rate transmission mechanism and equilibrium interest rate. Discussion of the research results in the research team and consultations with external experts on studied problems.

Year 5

Presentations of the research results on interest rate transmission mechanism and equilibrium interest rate at home and foreign research conferences. Sending research articles to opponent proceedings in journal with positive impact factor and final text edition according results of opponent proceedings.

Year 6

Implementation of comparative studies on studied problems for transition economies and EMU countries. Updating the results of previous research papers for the Czech Republic. Discussion of the research results in the research team.

Year 7

Sending research articles to opponent proceedings in journal with positive impact factor and final text edition according results of opponent proceedings. Presentation of the results at home and foreign research conferences.