Filip Novotny

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...

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 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...

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 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.

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 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.

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 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 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 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