Download Labour Market

Jaromír Šindel
ECES
The Puzzles of Central and Eastern Europe Transformation and Integration
Conduct of Monetary and Fiscal
Policy
ECES, Prague
• Fiscal Policy during transformation
– New role of government in society
– New fiscal, tax system
– Political cycle
• Monetary Policy during transformation
ECES, Prague
– New monetary system
– Case studies: Czech republic, Poland and Hungary
– Monetary and exchange rate based stabilization
programmes (next lecture)
– Financial and banking crisis (question of capital
mobility, next lecture)
The Puzzles of Central and Eastern Europe Transformation and Integration
Topics
• New role of government in society
– Lower subsidies
– From vertical to horizontal relationships in
economy
• What does goevernment do? Collecting taxes
and paying transfers (natural or in money).
The Puzzles of Central and Eastern Europe Transformation and Integration
Fiscal Policy during transformation
ECES, Prague
Lots of changes?
ECES, Prague
http://europa.eu.int/comm/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_2005_en.pdf
The Puzzles of Central and Eastern Europe Transformation and Integration
New tax system: VAT example
ECES, Prague
http://europa.eu.int/comm/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_2005_en.pdf
The Puzzles of Central and Eastern Europe Transformation and Integration
New tax system: VAT example
ECES, Prague
http://europa.eu.int/comm/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_2005_en.pdf
The Puzzles of Central and Eastern Europe Transformation and Integration
New tax system: VAT example
Czech Republic
Government Deficit
Year
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
GDP pct chg 2750,26 7,6%
2555,78 5,8%
2414,67 4,3%
2315,26 7,7%
2150,06 5,3%
2041,35 4,0%
1962,48 9,9%
1785,13 7,5%
1660,65 13,2%
1466,68 24,0%
1182,78 15,9%
1020,28
Deficit to GDP
Year Def/GDP
2004 -3,41%
2003 -4,27%
2002 -1,89%
2001 -2,93%
2000 -2,14%
1999 -1,45%
1998 -1,49%
1997 -0,89%
1996 -0,11%
1995 0,49%
1994 0,88%
1993 0,11%
Source: IFS
ECES, Prague
Year Deficit pct chg 2004
-93,7 -14,1%
2003 -109,1 139,4%
2002
-45,6 -32,9%
2001
-67,9 47,3%
2000
-46,1 55,2%
1999
-29,7
1,7%
1998
-29,2 83,6%
1997
-15,9 783,3%
1996
-1,8 -125,0%
1995
7,2 -30,8%
1994
10,4 845,5%
1993
1,1
GDP
The Puzzles of Central and Eastern Europe Transformation and Integration
Czech Republic - deficit
Consolidated tax burden (% GDP)
Gov. Expenditures without net
borrowing and subsidies to
transformation institutions (%
GDP)
ECES, Prague
Source: MF ČR
The Puzzles of Central and Eastern Europe Transformation and Integration
Czech Republic – government
taxes and expenditures
The Puzzles of Central and Eastern Europe Transformation and Integration
Czech Republic – gov. balance (% GDP)
With net borrowing
Without net borrowing and subsidies
to transformation institutions
ECES, Prague
Source: MF ČR
Mld. CZK
In % of GDP
ECES, Prague
Source: MF ČR
The Puzzles of Central and Eastern Europe Transformation and Integration
Czech R. – consolidated gov. debt
• Political cycle
The Puzzles of Central and Eastern Europe Transformation and Integration
Fiscal Policy during transformation
– The collected works of James Buchanan
• http://www.econlib.org/library/Buchanan/buchCContents.html
ECES, Prague
• New monetary system
– From 1 level banking system to 2 level (central
and commercial banks)
– State Bank of Czechoslovakia
• The change of banking system was prepared before
transformantion
• Case studies: Czech republic, Poland and
Hungary
ECES, Prague
– Different approaches to the monetary policy but
with the same problems
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy during transformation
Targeting of M2 growth (M2 = domestic and foreign monetary assets)
Year
Target
Reality
1993
Original 17,0 %
Modified 19,0 %
20,0
1994
Original 12,0 – 15,0 %
Modified 17,0 %
20,8
1995
14,0 – 17,0 %
19,4
1996
13,0 – 17,0 %
7,8
1997
8,0 – 12,0 %
8,7
Source: CNB
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Czech rep.
Why modified targets?
Because of the inflow of the foreign capital
ECES, Prague
Targets for net inflation (inflation without regulated prices and impact of indirect or
subsidies)
Year
Target
Target month
Set in
Reality
1998
5,5 - 6,5 %
December 1998
December 1997
1,7
1999
4,0 - 5,0 %
December 1999
November 1998
1,5
2000
3,5 - 5,5 %
December 2000
December 1997
3,0
2001
2,0 – 4,0 %
December 2001
April 2000
2,4
2005
1,0 – 3,0 %
December 2005
April 1999
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Czech rep.
Source: CNB
ECES, Prague
… but changes …
Inflation target (consumer price index)
Month
Targe level
Target month
Band starts
january 2002
3-5%
january 2002
Band ends
december
2005
2-4%
december
2005
… and changes …
Set in
april 2001
Source: CNB
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Czech rep.
inflation target from 2006 till Euro adoption 3 % (alowed 1 p.p.)
ECES, Prague
History of inflation targets in Czech republic in picture
ECES, Prague
Source: CNB
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Czech rep.
ECES, Prague
Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Poland
Inflation targets in Poland
ECES, Prague
Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Poland
Inflation vs. Targets
Fiscal deficits and Wages
ECES, Prague
Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Poland
Exchange rate (PLN) and Real Interest Rates
Monetary Conditions Index
ECES, Prague
Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Poland
ECES, Prague
Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Hungary
Inflation targets in Hungary
ECES, Prague
Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Hungary
Inflation vs. Targets
Food Price Indexes
ECES, Prague
Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Hungary
Fiscal deficits and Wages
Exchange rate (HUF) and Interest Rate (3 month)
ECES, Prague
Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com
The Puzzles of Central and Eastern Europe Transformation and Integration
Monetary Policy Strategy in Hungary
• Make a project for price
liberalization at Cuba and China.
• Goals, solutions, reasons.
The Puzzles of Central and Eastern Europe Transformation and Integration
Lessons for future.
ECES, Prague