Relations of Selected Macroeconomic Aggregates in the Czech Republic and EU in Connection with Currency Intervention of CNB in November 2013
Jiří Rozkovec, Kristýna Brzáková
Abstract
In November 2013 the Czech National Bank (CNB) made a currency intervention to weaken the Czech currency and help stem a slowdown in inflation. This action should have stimulated the economy, above all to recover the growth of GDP and to decrease the unemployment. In connection with this our paper analyses relations among these three macroeconomic aggregates – GDP, unemployment and inflation. Especially behaviour of the unemployment and inflation which has been described by Phillips’ curve where the higher unemployment should cause non-increasing inflation. Further, the correlation between the inflation and GDP to verify the assumption of the CNB. To complete all the pairs of selected indicators the unemployment and GDP have been researched as well. The analysis does not concern only with the Czech Republic, but also the other EU countries during the period 2010-2013.
Key words: inflation, GDP, unemployment, correlation
JEL code:C12, E31
Introduction
In November 2013 the Czech National Bank (CNB) made a currency intervention to depreciate the exchange rate of Czech crown and EUR. This action has been announced for several months. CNB this way tried to support the growth of GDP in the Czech Republic and at the same time decrease the high unemployment ibidem. The reason, according the information of CNB, was a deflation threat, which could cause further decrease of GDP, less production and consequently the increase of unemployment. CNB assumed that the higher prices and inflation ratewould make the consumers to spend money more than before to generate a new production of goods which recover the growth of GDP again. Furthermore, according the CNBmodels about thirty five thousands of new job positions should be created after the intervention (Hudema, Vainert 2013).
1 Methods
From the theoretical point of view the relation between the inflation and unemployment was explained in 1958 by Phillips (Clark, Goodhart, Huang, 1999, Cooley, Quadrini, 1999). The mutual behaviour of these two aggregates has been shown by the Phillips’curve (He, Zhang, 2005, Nobay, Peel, 2000). Briefly, the inflation is a decreasing function of unemployment. At the moment it is necessary to add that there is also a relation between GDP and the unemployment. In this case it is again a non-increasing function, i.e. the higher unemployment, the less GDP a vice versa. The former development of the mentioned aggregates in the Czech Republicin 1995-1999 has been described in (Izak, 2000).
In connection with the facts stated above this paper analyses mentioned macroeconomic aggregates not only in the Czech Republic but also in twenty four selected European countries: Austria, Belgium, Bulgaria, Croatia, Cyprus, Denmark, Estonia, Finland, France, Germany, Great Britain, Hungary, Ireland, Italy, Luxembourg, Latvia, Lithuania, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia and Sweden.
To identify the relationships between the aggregates the correlation analysis was used (Cyhelský & Souček, 2009). The null hypothesis H0: XY=0 was tested at 5% significance level. The alternative hypothesis depends on the particular pair of the aggregates. For the unemployment v. inflation and unemployment v. GDP it is H1: XY0. For GDP and inflation then it isH1: XY0. For the computation Microsoft Excel and Statgraphics Centurion XVI were used.
2 Analysis of Aggregates
2.1 Unemployment v. Inflation
As mentioned above the relationship between these aggregates should be decreasing (or non-increasing) function. The sample correlations of the unemployment and inflation are stated in Table 1. The states have been ordered by the correlation ascending.
Tab. 1: Correlations between unemployment and inflation
GE * / EST * / FIN * / B * / LT* / M* / LV* / SK* / CZ-0,89 / -0,83 / -0,81 / -0,78 / -0,45 / -0,45 / -0,44 / -0,42 / -0,25
AUT / BG / CY / L / PL / FR / IRL / SWE / P
-0,18 / -0,15 / -0,03 / -0,01 / 0,04 / 0,07 / 0,23 / 0,34 / 0,49
E / I / DK / GB / NL / H / SLO / HR
0,56 / 0,58 / 0,63 / 0,64 / 0,74 / 0,82 / 0,83 / 0,87
Source: EUROSTAT, own calculations
According the results just a half of the researched countries has a negative correlation between the unemployment and inflation and the second half has a positive one. The states denoted by a staircase {*} have a statistically significantnegative correlation. In the other states the unemployment and inflation are independent variables or their relation is a non-decreasing function. For illustration, there are three figures. There is the country with the lowest correlation (Germany), with the highest correlation (Croatia) and the Czech Republic.
Fig. 1: Unemployment and inflation – Germany
Source: EUROSTAT, own calculation
Fig. 2: Unemployment and inflation – Croatia
Source: EUROSTAT, own calculation
Fig. 3: Unemployment and inflation – Czech Republic
Source: EUROSTAT, own calculation
2.2 Unemployment v. GDP
In connection with the aggregates from the previous paragraph further pair of aggregates has been analysed. Concerning the unemployment and GDP it could be assumed the same hypothesis, i.e. their relation is a non-increasing function - the greater unemployment, the less GDP.
Tab. 2: Correlations between unemployment and GDP
EST * / GE * / LT * / LV * / CY * / E * / P * / FIN * / SWE *-0,97 / -0,96 / -0,96 / -0,96 / -0,93 / -0,87 / -0,80 / -0,73 / -0,59
CZ * / DK * / M * / SK / I / H / SLO / IRL / HR
-0,53 / -0,51 / -0,51 / -0,40 / -0,38 / -0,31 / -0,27 / -0,22 / -0,09
B / AUT / GB / NL / PL / FR / L / BG
-0,06 / 0,31 / 0,37 / 0,38 / 0,57 / 0,69 / 0,85 / 0,96
Source: EUROSTAT, own calculations
The results are different in comparison with the previous ones. Twelve of twenty six countries have negative correlation in accordance with the assumption.Further, at the same time four countries have a significant positive correlation.
Fig. 4: Unemployment and GDP – Estonia
Fig. 5: Unemployment and GDP – Czech Republic
Fig. 6: Unemployment and GDP – Bulgaria
2.3 Inflation v. GDP
The examined assumption for the third pair of aggregates could be derived for instance from (Andrei, Iacob, Profiroiu, Dananau, 2011, Hudema, Vainert, 2013). There is indicated that the greater inflation should make the consumers to increase buying and this way increase GDP. How it is noticeable from Tab. 3 the correlation is mostly positive (18 of 26 countries).
Tab. 3: Correlations between inflation and GDP
SWE / E / P / PL / DK / H / SLO / BG / HR-0,89 / -0,43 / -0,40 / -0,39 / -0,07 / -0,06 / -0,06 / -0,05 / 0,04
GB / I / CZ / M / CY / L / LT / IRL * / B *
0,18 / 0,25 / 0,33 / 0,33 / 0,34 / 0,34 / 0,39 / 0,54 / 0,56
FR * / LV * / NL * / EST * / GE * / AUT * / FIN * / SK *
0,58 / 0,58 / 0,61 / 0,74 / 0,77 / 0,81 / 0,87 / 0,87
Source: EUROSTAT, own calculations
There are also some states where the correlation is negative, but only one of them is statistically significant (Sweden).
Fig. 7: Inflation and GDP – Sweden
Fig. 8: Inflation and GDP – Czech Republic
Fig. 8: Inflation and GDP – Slovakia
Conclusion
The findings stated above can be summarized this way:
DOPSAT, DOPSAT, DOPSAT!! Uz mi padaji klapky … :-/
References
Andrei, T., Iacob, A. I., Profiroiu, A., Dananau, F. (2011). Some comments concerning informal economy, unemployment and inflation rates- romania's case. Economic computation and economic cybernetics studies and research, 45(3), 127-142.
Clark, P., Goodhart, C., Huang, H. (1999). Optimal monetary policy rules in a rational expectations model of the Phillips curve. Journal of Monetary Economics, 43(2), 497-520.
Cooley, T., Quadrini, V. (1999). A neoclassical model of the Phillips curve relation. Journal of Monetary Economics, 44(2), 165-193.
Cyhelský, L., & Souček, E. (2009). Základy statistiky. (1 ed., pp. 110-115). Praha: Eupress.
European Statistics (EUROSTAT). Statistics (2014). [online]. [cit.2014-02-05]. Available:
He, H., Zhang, S. (2005). Phillips curve's study under the New Economic condition. Seventh International Conference on Electronic Commerce, Vols 1 and 2, Selected Proceedings, 798-800.
Hudema, M., Vainert, L. (2013, 11 21). Důvěru včeskou korunu jsme nepodlomili, lidé o nic nepřišli. Hospodářské noviny,p. 11.
Izak, V. (2000). Czech disinflation and gross domestic product. Politická ekonomie, 48(5), 623-646.
Nobay, A., Peel, D. (2000). Optimal monetary policy with a nonlinear Phillips curve. Economics Letters, 67(2), 159-164.
Contact
Jiří RozkovecKristýna Brzáková
Technická univerzita v Liberci, Technická univerzita v Liberci,
Ekonomická fakulta, Ekonomická fakulta,
katedra ekonomické statistikykatedra ekonomie
Studentská 2, 46117 LiberecStudentská 2, 46117 Liberec