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  • ALBRECHT, P., KAPOUNEK, S., KUČEROVÁ, Z., 2022. Economic policy uncertainty and stock markets’ co-movements. International Journal of Finance & Economics ,1-17, IF=3.070, URL= https://doi.org/10.1002/ijfe.2603

Here, we investigate the direction of the relationship between economic policy uncertainty (EPU) and stock markets. We focus on time-variant co-movements between the EPU index and selected stock market indices (S&P500, UK100, Nikkei225 and DAX30) at different investment horizons. We show that the EPU index lags stock markets at longer investment horizons during global financial turmoil, especially in the United States, Japan and Germany. The identified lag between the changes of the EPU index and selected stock market indices ranges between 2 and 6 months at investment horizons exceeding 32 months. In addition, we confirm the existence of the short-term effects of EPU on stock markets.

In this paper, we examine the sources of the US current account imbalances and discuss the role of the international monetary system in enabling the US in carrying such external deficits. There is evidence that the stochastic properties of the US current account are not compatible with the intertemporal national budget constraint. We argue that this is likely to be related to the dominant role of the U.S. dollar as an international reserve asset, which allows the US to meet international demand for safe assets and allows borrowing at very low interest rates. Results from a structural VAR model indicate that temporary shocks dominate the current account in the short run, whereas domestic permanent supply shocks and preference shocks contribute significantly to US current account movements in the long run. To the extent that temporary shocks stem from aggregate demand, stabilizing aggregate demand is important in achieving long-term sustainability in the current account. Finally, the paper discusses the role of the international financial system and the international role of the U.S. dollar in contributing to US external imbalances.

In recent years, M&As have become popular among Chinese companies, with many of them receiving a high premium. This paper empirically analyses the motivation of high-premium M&As from the perspective of price manipulations. The sample consists of 1,013 Chinese companies, listed on the Shanghai and Shenzhen stock exchange, and covers the period from 2013 to 2018. Our results indicate that benefit seeking of major shareholders on the costs of minor investors is a key determinant for the merger of companies. In comparison, economic synergy effects are not the predominant factor of M&As. Therefore, legal reforms by the Chinese Market Supervisory Department are necessary to protect smaller investors.

  • HARTWELL CH., HORVÁTH R., HORVÁTHOVÁ E., POPOVA O., 2021. Natural resources and income inequality in developed countries: synthetic control method evidence. Empirical Economics (2021), IF= 1,713, URL = https://doi.org/10.1007/s00181-021-02023-5

We examine the causal effect of natural resource discoveries on income inequality using the synthetic control method on data from 1947 to 2009. We focus on the natural discoveries in Denmark, Netherlands, and Norway in the 1960–1970s and use top 1% and top 10% income share as the measure of income inequality. Many previous studies have been concerned that natural resources may increase income inequality. To the contrary, our results suggest that natural resources decrease income inequality or have no effect. We attribute this effect to the high institutional quality of countries we examine.

Cooling is one of the most important benefits of street trees, yet city planners lack estimates of the value of this benefit. Estimation of the value of the cooling effect could help to strengthen the case for investment in a tree cover as a part of the urban infrastructure for climate change adaptation. This article aims to address this research gap by presenting a novel application of a replacement cost method using the costs of parasols for estimating the value of shade provided by urban trees. Using the method, we calculated the net present value of the shade from a generic tree and used these estimates in a case study in Prague, Czech Republic. The results showed that the costs of tree planting and maintenance were higher than the estimated shading benefits in the short term (20–30 years), but the situation reversed when the tree life expectancy increased (> 40 years). Street trees are hence a long-term investment in terms of microclimate regulation. The proposed approach can assist city planners with an assessment of microclimate regulation by urban trees as it can be easily applied with local data, and can complement other methods to show the wider benefits of urban trees.

This paper analyzes the impact of ethnic heterogeneity and military conflict on the degree of regional consumption risk-sharing in Ukraine. Ethnicity and violent conflicts can influence risk-sharing e.g. through social capital, ethnic fractionalization, migration, and remittances. The sample consists of 25 Ukrainian oblasts and covers the highly volatile period from 2003 to 2016. Our results suggest that the degree of consumption risk-sharing is comparably high; between 70 and 80 percent on average. Moreover, consumption risk-sharing is significantly higher in the regions with a large Russian minority, which are enjoying special treatment by Russia. By contrast, the degree of financial development, as proxied by deposit and loan share in GRP, does not significantly affect the regional degree of consumption risk-sharing. Furthermore, we apply spatial models to control for spatial dependence across regions. Results are confirmed and it is shown that spatial correlation is important. Finally, we show that the recent geopolitical conflict in east Ukraine changed the regional degree of consumption risk-sharing.

We examine daily USD returns for Bitcoin, Ethereum and Litecoin between October 2013 and September 2019 at six separate exchanges employing wavelet methodology. This approach, as compared to the standard time domain analysis, is superior because it tests the existence of cyclical persistencies at different investment horizons. We identify significant but temporal cyclical movements and coherence between the markets at high frequencies which is broadly consistent with market inefficiency given liquidity constraints of cryptocurrencies. Moreover, we identify temporal arbitrage opportunities between the selected exchanges.

We analyze the exchange rate forecasting performance under the assumption of selective attention. Although currency markets react to a variety of different information, we hypothesize that market participants process only a limited amount of information. Our analysis includes more than 100,000 news articles relevant to the six most-traded foreign exchange currency pairs for the period of 1979-2016. We employ a dynamic model averaging approach to reduce model selection uncertainty and to identify time-varying probability to include regressors in our models. Our results show that smaller sizes models accounting for the presence of selective attention offer improved fitting and forecasting results. Specifically, we document a growing impact of foreign trade and monetary policy news on the euro/dollar exchange rate following the global financial crisis. Overall, our results point to the existence of selective attention in the case of most currency pairs.

  • BAKOVÁ, K., KAPOUNEK, S., 2020. Asymmetric Effects of Firm Investment Determinants: Evidence from Post-transformation Economies. Finance a úvěr-Czech Journal of Economics and Finance, 70, 373–384, IF=0.625, URL = https://journal.fsv.cuni.cz/mag/article/show/id/1469

The paper investigates asymmetric effects of liquidity and profitability on the investment behavior of publicly traded firms in post-transformation economies. We show that firms in post-transformation economies face more restrictive access to external sources of funds stemming from underdeveloped capital markets. We confirm that management of firms uses free cash flow to increase firm investment activities. On the contrary, liquidity decreases do not affect investment decision making processes of firms. We also confirm positive effects of increasing profitability and negative effects of decreasing profitability on the firm investment behavior. However, our results are robust only for the firms with financial leverage reported between 1 % and 50 %. Investment behavior of over indebted firms and low indebted firms is affected mostly by aggregate economic activity.

This paper offers a systematic evaluation of the evidence on the effects of currency unions on the synchronisation of economic activity. Focusing on Europe, we construct a database of about 3000 business cycles synchronisation coefficients including their design and estimation characteristics. We find that: (1) synchronisation increased from about 0.4 before the introduction of the euro in 1999 to 0.6 afterwards; (2) this increase occurred in both euro and non-euro countries (larger in former); and (3) there is evidence of country-specific publication bias.

  • KORÁB, P., KUKUČKOVÁ, S., 2019. Determinants of Deposit and Credit Euroization in Eastern Europe: A Bayesian Model Averaging Evidence. Journal of economics: journal for economic theory, economic policy, social and economic forecasting, 67, 550-566, IF= 0.605, URL= https://www.sav.sk/journals/uploads/0712101805%2019%20Korab-SR.pdf

The paper investigates the motives for deposit and credit euroization in Eastern Europe employing Bayesian empirical methodology. We analyse an extensive dataset of macroeconomic fundamentals, perception surveys and institutional quality indicators, and deal with the uncertainty in the model by Bayesian model averaging. Apart from traditional fundamental macroeconomic factors, strong institutions are found to be an important driver of both credit and deposit euroization. Business regulation, perception of corruption, quality of political arrangement and trade restrictions impact borrowing and saving behaviour in the euro and should be reflected in designing economic policies in the region.

Ambiguous terminology, as well as, causality, and a too wide spectrum of determinants at the demand side of the Welfare State, these are the main drawbacks of thematic literature. The aim of this paper is to systematise the literature on individual support for the Welfare State. Besides the clarification of terminology and argumentation of prevailing causality (informal institutions → individual support for the Welfare State), the paper underlines the importance of individualist values and beliefs; in particular, individual control over one´s life, which can be based on psychological conceptions of locus of control and self-efficacy, and empirically tested thanks to databases WVS/EVS.

We test the Rajan hypothesis using data for Russian regions from 2000 (after the ruble crisis) to 2012 (befote the introduction of international sanctions). The Rajan hypothesis predicts that rising income inequality leads politicians to expand credit for the poor, which in turn, fuels a consumer credit boom. Our analysis provides several unique opportunities in that Russia is a post-communist transition country with 75 diverse regions. We find that a rise in income inequality is positively correlated with personal loan growth in Russia. We also find a statistically weaker, albeit economically larger, relationship between economic inequality and corporate credit. Taken together, our results provide support for the predictions of Rajan in a country with extreme regional differences and a long history of populist policies.

We investigate the link between stock returns, market risks, financial indicators and behavioural attention, which represents supply and demand for the selected assets. We assume that behavioural attention represents actions emphasising the importance of information followed by information-selection behaviour. Using a rich dataset of 100 US stocks we show the impact of financial ratios along with indicators related to dividends on stock returns. Moreover, we find evidence that stock returns are influenced by behavioural attention based on the level of search intensity. The results show that behavioural attention to stock (share) prices is positively associated with stock returns, attention varies across the sectors and during the financial crisis, attention began to be significant.

  • POMĚNKOVÁ, J., KLEJMOVÁ, E., KUČEROVÁ, Z., 2019. Cyclicality in lending activity of Euro area in pre- and post- 2008 crisis: a local-adaptive-based testing of wavelets. Baltic Journal of Economics, 19, 155-175, IF=0.714. URL= https://doi.org/10.1080/1406099X.2019.1596466

The paper deals with the identification of time-frequency regions describing cyclicality of bank loans before, during and after the 2008 crisis via wavelets. We bring new methods and findings about the short and medium cycles of loans provided to corporates and households in the Euro Area in 2000–2017 using seasonally unadjusted monthly data. We have recognized an impact of the crisis on data volatility which further influences the type of significance testing of wavelet spectrograms. To avoid this influence we propose: (1) an adaptive spectrogram testing based on Torrence and Compo approach and (2) robustness analysis via enhanced spectrogram modelling tested by the MC simulations. Both cross-checked approaches prove the sensitivity of standard wavelet tests on data volatility. The results confirm the usability of the new approaches and show that the crisis in 2008 influenced the cyclical behaviour of both categories of economic sectors, but in a different way.

  • FIDRMUC, J., DEGLER, M., 2019. Temporal and Spatial Dependence of Interregional Risk Sharing: Evidence from Russia. Macroeconomic Dynamics, 1-23. URL: doi:10.1017/S1365100518000706

We present an analysis of interregional consumption risk sharing in Russia between 1999 and 2009 using novel estimation methods. In addition to standard fixed-effects panel estimations, we use system and difference GMM estimators to reflect time dynamic properties and possible endogeneity between output and consumption. Furthermore, we apply spatial models that control for spatial dependence across regions. The results show that regional consumption deviations from the national average are highly persistent in time and space. Nevertheless, the regional consumption risk sharing in Russia is relatively high with 70%–90% of idiosyncratic risk being smoothed. Finally, fiscal policy and the degree of financial development appear to contribute to the consumption smoothing.

  • FIDRMUC, J., KAPOUNEK, S. 2019. Risks and Financial Vulnerability of Foreign Bank Ownership in CEECs: Evidence from Exchange Rate Depreciation after the Financial Crisis. Eastern European Economics, IF=1.080. URL: https://doi.org/10.1080/00128775.2019.1666412

The banking sector in Central and Eastern European countries is characterized by cross-border mergers and acquisitions. Financial integration improved firm access to international capital markets but also posed a serious challenge in terms of financial vulnerability. We use bank data to analyze the determinants of bank lending between 1998 and 2016. Our results confirm significant differences in lending behavior between domestic and foreign banks. In particular, foreign banks are more sensitive to exchange rate changes but less sensitive to domestic demand. Currency depreciation has a larger negative impact on lending by foreign banks, with a lower ratio of deposits to equity.

  • CAMPOS N. F., FIDRMUC J., KORHONEN I., 2019. Business cycle synchronisation and currency unions: A review of the econometric evidence using meta-analysis. International Review of Financial Analysis, 61, 274-283, IF=1.693 ISSN 1057-5219. URL: https://doi.org/10.1016/j.irfa.2018.11.012

This paper offers a systematic evaluation of the evidence on the effects of currency union on the synchronisation of economic activity. Focusing on Europe, we construct a database of about 3000 business cycles synchronisation coefficients including their design and estimation characteristics. We find that: (1) synchronisation increased from about 0.4 before the introduction of the euro in 1999 to 0.6 afterwards; (2) this increase occurred in both euro and non-euro countries (larger in former); and (3) there is evidence of country-specific publication bias.

  • DELTUVAITÉ V., KAPOUNEK, S., KORÁB, P. 2019. Households’ Saving Behaviour in Reaction to the External Macroeconomic Shocks and Behavioral Attention. Prague Economic Papers: Quarterly Journal of Economic Theory and Policy, 28, IF=0.825. URL: https://www.vse.cz/pep/690?lang=en

This paper investigates the impact of behavioural attention on the households’ foreign currency savings as a response to the external macroeconomic shocks. The information that the households acquire via different communication channels is expected to influence their decisions regarding their savings’ allocation into different currencies. This study has applied the fundamental macroeconomic models by including individuals’ attention to the specific risks and search interest in specific keywords on Google in order to assess the impact of acquired information and its communication channel on the households’ foreign currency savings. We employed a twolevel mixed effects model including macroeconomic fundamentals and individuals’ attention to the information determinants. We solved a problem of a long list of potential explanatory variables (keywords) by employing the Bayesian Model Averaging. This study assumes that households are more sensitive to the macroeconomic shocks (factors) if they search simultaneously for information on Google about these factors or specific related risks. The results emphasize the role behavioural attention during financial turmoil and economic downturn periods, especially in the environment of very low interest rates.

We present a meta-analysis of the impact of higher capital requirements imposed by regulatory reforms on the macroeconomic activity (Basel III). The empirical evidence derived from a unique dataset of 48 primary studies indicates that there is a negative, albeit moderate GDP effect in response to a change in the target capital ratio. Meta-regression results suggest that the estimates reported in the literature tend to be systematically influenced by a selected set of study characteristics, such as econometric specifications, the authors’ affiliations, and the underlying financial system. Finally, we discuss the publication bias.

  • KAPOUNEK, S., KUČEROVÁ, Z. 2019. Historical Decoupling in the EU: Evidence from Time-Frequency Analysis. International Review of Economics and Finance, 60, 265–280, IF=1.318. URL: https://doi.org/10.1016/j.iref.2018.10.018

We investigate economic cycle comovements and identify directions of relationships to discuss the spread of asymmetric shocks across the European Union during the twenty years from the euro adoption. We contribute to traditional wavelet analyses with an updated historical overview of economic cycle comovements in 24 EU countries over 35 years with particular attention to the main milestones in the European integration process.

We show the significant economic cycle synchronisation between France and the EU and point out the decoupling of Germany, the United Kingdom and countries in Southern Europe. In addition we find strong evidence of comovements between the three Baltic countries. Our results do not support the idea of increasing business cycle synchronisation of monetary union members, despite European economic integration deepening.

We focus on reward-based crowdfunding and identify the basic determinants of successful crowdfunding campaigns including new determinants not analyzed in previous studies. Using a rich database of Kickstarter projects launched during the period from April 2009 to April 2017, we employ an empirical logit model to test the causalities and statistical significance of the selected factors. Our new empirical findings suggest that launching a project campaign during the weekend and during the month with the stronger competition in the form of other launched projects decreases the success rate of the campaign. On the other hand, a longer preparation period on Kickstarter and a higher projects’ density in the given state can increase the chances to succeed. We also conclude that the competition plays the most prominent role in the category of the smallest projects. Conversely, a negative effect of projects launched at weekends and a positive effect of a founder ‘s experience is the strongest in the group of the largest projects.

Using a rich dataset on individual firms in selected EU countries between 2005 and 2012, we document a surprisingly high share of assets tied in highly inefficient firms. Moreover, we discuss different channels through which institutions may affect firm financial developments and thus the long-run growth. Using Bayesian model averaging analysis, we discuss the importance of different types of economic, financial and political institutions. We show that high institutional quality improves the financial conditions of firms. However, too lax business regulations may worsen firms’ performance possibly due to excessive risk taking behavior.

The paper investigates the link between macroeconomic shocks, the institutional environment and the responses of bank lending activities to the financial crisis. We hypothesize that property rights and the enforcement of rules are crucial for well-functioning markets, especially in transition and emerging market economies where new institutions were created. The empirical analysis adopts panel regression models with bank fixed effects. Our rich dataset contains 10,565 banks from 66 countries across the whole world. The uncertainty caused by selection of regressors is reduced by Bayesian model averaging. In addition, we put a special emphasis on the dynamic changes of probability to involve selected variables into the model. We identify ownership structures and confirm inverse effects of institutional environment on the government and private banks. We show negative effects of economic freedom, openness and globalization on the lending activity of government banks while low regulations increase lending activity of private banks. We argue that economic and financial openness reduces information asymmetries and increase competition in private banking sector which results in lower net interest margins. On the contrary, lending activity of government bank is supported by political constraints.

We analyse the bank lending activity after the financial crisis and focus on bank-specific supply factors. Using a rich microeconomic dataset from Bankscope and macroeconomic shocks data, we employ OLS and 2SLS fixed effects models with banking controls, macroeconomic shocks and institutional quality. The banks’ loan-rate spreads increased despite the recent policy of low interest rates and quantitative easing. We use the bank asset quality as instruments to capture exogenous changes in loan supply. The empirical evidence shows that loan-rate spread and through this the supply of loans is negatively affected by a low asset quality and capital ratios.

The pro-cyclical effect of provision is generally agreed and widely discussed in the context of the current financial crisis. The new model of the dynamic provisions applied in Spain showed countercyclical effects on the credit and business cycle. We simulate development of the dynamic provisions during the financial crisis and discuss the possible consequences. We apply a panel data model of the past credit cycle to calibrate the parameters following the same approach as in the Spanish dynamic provision. Our contribution is in the application of dynamic provisions on the banking systems for the V4 countries.

Coordination of or at least absence of conflict between monetary and fiscal policies are key to the successful implementation of economic policy. The article aims to use reaction functions to assess whether the monetary and fiscal policies in the countries of the Visegrad Group are in coordination or in conflict and which variables influence their decisions. The central bank is the representative of monetary policy, which has interest rates as its instrument, and the government as the representative of the fiscal policy which has change revenue or spending as a share of GDP as instrument. To obtain the results, multivariate regression analysis is used. The research period is based on quarterly observations from first quarter of 2000 to the fourth quarter of 2012. Stabilizing role of monetary policy and in some countries also partially stabilizing role of fiscal policy has been found. Another result was that in the case of the Czech Republic, Slovakia and Poland, monetary policy appears to play the dominant role, whereas fiscal policy plays dominant role in Hungary. In the case of Slovakia, some different results may be due to Slovakia’s participation in ERM II, which led to the monetary policy, in addition to maintaining price stability, also aiming to maintain a fixed exchange rate and the subsequent entry of Slovakia into the Eurozone and the de facto loss of autonomous monetary policy.

  • KUČEROVÁ, Z., POMĚNKOVÁ, J., 2015. Financial and Trade Integration of Selected EU Regions: Dynamic Correlation and Wavelet Approach. Ekonomický časopis/Journal of economics, 63, 686-704. URL: https://ideas.repec.org/p/men/wpaper/45_2014.html

We evaluate the relation between financial and trade integration in new (formerly central-planned economies) and old (developed) EU countries. Classical and moving correlation shows the strong relation in the pre-crisis period. Dynamic correlation confirms strong relation for long and business cycle frequencies. Specification via wavelet cospectrum reveals that the long frequencies are correlated in 2000-09, business cycle frequencies in 1993-94, 2003-04 and middle frequencies generally in 2008-2010. The process of financial integration was stronger in the old EU member countries, the process of trade integration in the new member countries. The progress was smaller in financial compared to the trade integration. 

The paper considers ‘trust’ as an empirical determinant of individual support for government intervention. The central notion is that the influence of generalized trust on policy attitudes is conditional on confidence in both state actors and major companies. The starting point is the idea that individuals who generally distrust other persons have a stronger taste for the regulation of economic activities, while people with high interpersonal trust are in favor of less stringent regulatory control. Yet, people who do not trust unknown others also tend to mistrust government and private companies. If mistrust in state actors dominates, we should not necessarily expect stronger interventionist preferences. Estimating the determinants of interventionist attitudes using data from the World Values Survey/European Values Study for approximately 130,000 individuals in forty OECD- and EU-countries, we find evidence that the impact of social trust on government intervention attitudes is conditional on institutional trust. Confidence in major companies appears to have a stronger effect on preference formation than trust in state actors.

We propose a novel method for econometric time series analysis. This method acts as the comovement-selective filter and is useful to filter out the cycles that are caused by an global event present in the reference time series. We demonstrate its applicability on removing symmetric macroeconomic shock caused by recent financial crisis from the business cycle of the euro area according to the comovement with the United States. The application allowing to identify the country specific business cycles in the Visegrad countries data using the comovement with Germany is also presented. The method is based on the continuous wavelet transform, its inverse and the comovement measurement in the time-frequency domain. Its application also enables to uncover detailed development of the business cycle synchronization in time.

We focus on changes in dynamic correlation during the recent fi nancial crisis. The results show different responses to this symmetric shock in V4 countries. We discuss possible specialization if the dynamic correlation increases only at certain of the frequencies. Especially, in case of the Czech Republic where the variability of dynamic correlation in business cycle frequencies increased in relation to the euro area, whereas decreased in relation to Germany. Consequently, we point out to the limitations of a correlation and concordance index as common indicators of business cycle synchronization in time domain.

KAPOUNEK, S., POMĚNKOVÁ, J. 2013. The endogeneity of optimum currency area criteria in the context of financial crisis: Evidence from the time-frequency domain analysis. Agric. Econ. – Czech, 59, 389–395, IF=0.482. URL: 10.17221/9/2013-AGRICECON

We provide the wavelet analysis of the economic cycle synchronization during the recent financial crisis. However, the global financial crisis caused economic cycles in most European countries to become more strongly synchronized without increasing of the real convergence process. Our contribution is an application of the singular value decomposition to identify and remove the long-term trend including outliers appearing in the year 2007-2010. We found that the historically greater integration provides more highly synchronized cycles in the core Euro area member countries.

KAPOUNEK, S., LACINA, L. 2011. Inflation Perceptions and Anticipations in the Old Eurozone Member States. Prague Economic Papers: Quarterly Journal of Economic Theory and Policy, 2, 120–139, IF=0.825. URL: https://ideas.repec.org/a/prg/jnlpep/v2011y2011i2id392p120-139.html

There is empirical evidence that the introduction of the euro led to a significant increase of perceived inflation in most countries. Such an increase and persistence in the perceived inflation might then have an impact on inflation expectations and other macroeconomic variables. The authors have used expectational errors to describe the difference between inflation expectations/anticipations and its observed values, subsequently to identify the causality between these variables.

POMĚNKOVÁ, J., KAPOUNEK, S. 2009. Interest Rates and Prices Causality in the Czech Republic – Granger Approach. Agric. Econ. – Czech, 7, 347–356, IF=0.482. URL: 10.17221/2/2009-AGRICECON

Monetary policy analysis concerns both the assumptions of the transmission mechanism and the direction of causality between the nominal (i.e. the money) and real economy. The traditional channel of monetary policy implementation works via the interest rate changes and their impact on the investment activity and aggregate demand. Altering the relationship between the aggregate demand and supply then impacts the aggregate price level and hence inflation. Alternatively, the Post-Keynesians postulate money as a residual. In their approach, banks credit in response to the movements in investment activities and demand for money. In this paper, the authors use the VAR (i.e. the vector autoregressive) approach applied to the “Taylor Rule“ concept to identify the mechanism and impact of the monetary policy in the small open post-transformation economy of the Czech Republic. The causality (in the Granger sense) between the interest rate and prices in the Czech Republic is then identified. The two alternative modelling approaches are tested. First, there is the standard VAR analysis with the lagged value of interest rate, inflation and economic growth as explanatory variables. This model shows one way causality (in the Granger sense) between the inflation rate and interest rate (i.e. the inflation rate is (Granger) caused by the lagged interest rate). Secondly, the lead (instead of lagged) values of the interest rate, inflation rate and real exchange rate are used. This estimate shows one way causality between the inflation rate and interest rate in the sense that interest rate is caused by the lead (i.e. the expected future) inflation rate. The assumptions based on money as a residual of the economic process were rejected in both models.