Featured publications

A DSGE Model with Financial Dollarization – the Case of Serbia

Mirko Djukić, Tibor Hlédik, Jiří Polanský, Ljubica Trajčev, Jan Vlček

  • We amend a DSGE model of a small open economy by adding financial euroization in order to capture the main channels of the monetary transmission mechanism in match the Serbian data. In contrast to the standard DSGE workhorse, the model encompasses commercial banks and foreign-exchange-denominated deposits and loans. Given these features, the model is well suited to evaluating effects of the nominal exchange rate on the financial wealth and consumption of households. The model structure, including optimization problems and first-order conditions, is provided in the paper. The model properties are tested to match the stylized facts of dollarized economies. Specifically, the model is calibrated to the Serbian data, and a model-consistent multivariate filter is used to identify unobserved trends and gaps.

    JEL codes: E44, F41, F47

    Keywords: DSGE model, financial dollarization

    Issued: June 2017

    Download: CNB WP No. 2/2017

Total Factor Productivity Growth in Central and Eastern Europe before, during and after the Global Financial Crisis

Working Papers of Eesti Pank 8/2017

  • Natalia Levenko, Kaspar Oja and Karsten Staehr

    This paper conducts growth accounting for 11 EU countries from Central and Eastern Europe for the years 1996–2016. Its contributions include the estimation of new capital stock series, adjustment for the utilisation of the capital stock and a time-varying elasticity of output to capital. Before the crisis, growth in total factor productivity (TFP) was the main contributor to output growth in Slovenia, Hungary and Slovakia, while capital deepening was more important in the Czech Republic, Croatia and Poland. During the global financial crisis the contributions of TFP and capital growth differed markedly across the countries, reflecting the very diverse dynamics of the crisis. After the crisis the contribution of TFP growth has been negligible in all of the sample countries coinciding with generally weak output growth. The results are generally robust to changes in estimation methods and parametrisations, but some assumptions are critical for the results.

    JEL Codes: F43, O47

    Keywords: growth accounting, capital stock, perpetual inventory method, total factor productivity, global financial crisis, Central and Eastern Europe

    Corresponding author’s e-mail address:

    Download: 8/2017 Natalia Levenko, Kaspar Oja and Karsten Staehr. Total Factor Productivity Growth in Central and Eastern Europe before, during and after the Global Financial Crisis

Crimea and punishment: The impact of sanctions on Russian and European economies

Working Papers of Eesti Pank 5/2017

  • Konstantin A. Kholodilin, Aleksei Netšunajev

    The conflict between Russia and Ukraine that started in March 2014 led to bilateral economic sanctions being imposed on each other by Russia and Western countries, including the members of the euro area. The paper investigates the impact of the sanctions on the real side of the economies of Russia and the euro area. The effects of sanctions are analysed with a structural vector autoregression. To pin down the effect we are interested in, we include in the model an index that measures the intensity of the sanctions. The sanction shock is identied and separated from the oil price shock by narrative sign restrictions. We nd a very high probability that Russian GDP declined as a result of the sanctions. In contrast to that, the effects of the sanctions on the euro area are limited to real effective exchange rate adjustments.

    JEL Codes: C32, F51
    Keywords: political conflict; sanctions; economic growth; Russia; euro area; structural vector autoregression

    Konstantin A. Kholodilin (corresponding author): DIW Berlin. E-mail:
    Aleksei Netšunajev: Eesti Pank. E-mail:

    Download: 5/2017 Konstantin A. Kholodilin, Aleksei Netšunajev. Crimea and punishment: The impact of sanctions on Russian and European economies

Spillovers from the ECB's non-standard monetary policy measures on south-eastern Europe

Working Paper No. 2095, 23 August 2017

  • Moder, Isabella

    This paper is the first to comprehensively assess the impact of the euro area’s non-standard monetary policy measures on south-eastern Europe. By employing bilateral BVAR models, I am able to estimate the response of output and prices for each country, as well as to shed more light on potential shock transmission channels. The results suggest that the ECB’s non-standard monetary policy measures have had pronounced price effects on all south-eastern European countries, and output effects on approximately half of them. While I also find exports to be a relevant transmission channel in most cases, the interbank market rate responds significantly only in a few cases as the region was subject to significant cross-border bank deleveraging after the crisis. Furthermore, the results suggest that the exchange rate regime does not play a role in determining the sign and magnitude of price level and output responses. This is in line with the absence of distinct exchange rate responses in the model output, suggesting that exchange rates did not act as buffers for spillovers of euro area non-standard monetary policy measures on south-eastern Europe.

    JEL Codes: C11, C32, E52, F42


The New Silk Road, part I: a stocktaking and economic assessment

Stephan Barisitz, Alice Radzyner

  • China’s New Silk Road (NSR) initiative was officially launched in 2013. It aims at enhancing overall connectivity between China and Europe by both building new and modernizing existing – overland as well as maritime – infrastructures. The NSR runs through a number of Eurasian emerging markets with important growth potential. The Chinese authorities have entrusted the Silk Road Fund, the Asian Infrastructure Investment Bank and other institutions with financially supporting NSR activities. Most drivers of the initiative are of an economic or a geopolitical nature. Given the generous financial means at Beijing’s disposal and Chinese firms’ accumulated expertise in infrastructure projects, many undertakings are currently well under way and promise to (eventually) bring about considerable changes in connectivity, com-merce and economic dynamism. While most Chinese NSR investments go to large countries (e.g. Pakistan, Malaysia, Indonesia, Russia, Kazakhstan and Kenya), the strategically situated smaller countries (e.g. Djibouti, Sri Lanka, Kyrgyzstan, Laos, Serbia and Montenegro) typically benefit the most (in relation to the size of their economies). Progress has been made in strengthening the maritime infrastructural trade links with the EU (e.g. through the modern-ization of deep-water ports) while the upgrading of the currently rather weak trans-Eurasian railroad and highway links (e.g. via Kazakhstan and Russia) is clearly improving overland trans-portation’s yet modest competitive position.


Competitiveness of CESEE EU Member States: recent trends and prospects

Doris Ritzberger-Grünwald, Josef Schreiner, Julia Wörz

  • This short study gives a comprehensive overview of the competitive strengths and weaknesses of the 11 Central, Eastern and Southeastern European (CESEE) EU Member States over the period from 2000 to 2014. It reviews traditional measures such as market share and price developments as well as indicators reflecting nonprice competitiveness and the influence of integrated production networks. While the CESEE countries have shown impressive improvements in their competitiveness over the review period, some of these gains are clearly associated with processing high-quality inputs, the transfer of technological and managerial know-how within international production networks and the participation in potent marketing and distribution networks. However, the CESEE countries continue to lag behind Western Europe with respect to infrastructure, institutions and innovation.


Fintechs and their emergence in banking services in CESEE

Caroline Stern

  • Over the last years, the development of financial technology in the banking sector got a new twist with the emergence of numerous small start-ups called fintechs. Some of the new tech-nologies will probably make specific areas of the banking business more efficient, while others may have the potential to disrupt the traditional banking sector. This paper presents the out-come of a stocktaking exercise and shows that most of the new financial technologies are still being used on a small scale. Given that the CESEE region is usually omitted in discussions of fintechs, this paper aims at closing this gap by giving an idea of which activities exist in this region with regard to financial technology. Focusing on three business areas – (1) financial services, (2) payments and (3) financing – this study finds that the level of adoption of new technolo-gies varies across the CESEE countries. Also, a handful of countries seem to have a more active fintech scene in some areas (e.g. peer-to-peer lending) than many of their Western neighbors.


Comparing market power at home and abroad: evidence from Austrian banks and their subsidiaries in CESEE

Martin Feldkircher, Michael Sigmund

  • In this study, we examine markups of Austrian banks and their subsidiaries in Central, Eastern and Southeastern Europe (CESEE) on an unconsolidated level. Markups are evaluated by means of the Lerner index by simultaneously estimating a price and a cost function derived from oligopoly theory. For that purpose, we use a novel fixed effects seemingly unrelated regression approach and a unique supervisory dataset covering around 800 banks over the period from the first quarter of 2008 to the second quarter of 2016. We find evidence for positive markups for Austrian subsidiaries in CESEE. These markups are even higher than the markups of Austrian parent banks, which emphasizes the importance of the CESEE markets for the overall profitability of the Austrian banking sector. Looking at the determinants of markups for Austrian subsidiaries in CESEE, we find that higher Lerner indices are associated with better capitalization, higher loan loss provisions and, more generally, greater size – the latter effect is especially true for banks in more developed host countries. Also, there is a negative correlation between the Lerner indices of subsidiaries and parent banks. This implies that opportunity costs in the home country play a role in determining market power in the host country.