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International Monetary Fund. European Dept.
This Selected Issues paper provides a brief overview of Slovakia’s transformation over this period. The note is divided into three parts. The first section offers some historical background on the run-up to EU accession. The paper also discusses the economic impact of EU accession and highlights the main challenges that Slovakia still faces. Although the first decade in the EU has seen successes, Slovakia faces important challenges to consolidate its position and close the gap with more advanced economies. A first long-term challenge is to shift from efficiency to an innovation-driven growth model. Actions to improve the business environment and domestic infrastructure could lay the foundations for stronger and more job-rich growth. In Slovakia, the high unemployment rate reflects the faulty working of three key mechanisms: the transition from school to work; the transition from unemployment back to employment; and mobility across regions. In order to address this situation, wide-ranging policies need to be implemented. The quality of education and training needs to be improved in order to better correspond to labor market needs. The ongoing reform of vocational education and training is a step in the right direction.
Christian Saborowski, Sarah Sanya, Hans Weisfeld, and Juan Yepez
This paper examines the effectiveness of capital outflow restrictions in a sample of 37 emerging market economies during the period 1995-2010, using a panel vector autoregression approach with interaction terms. Specifically, it examines whether a tightening of outflow restrictions helps reduce net capital outflows. We find that such tightening is effective if it is supported by strong macroeconomic fundamentals or good institutions, or if existing restrictions are already fairly comprehensive. When none of these three conditions is fulfilled, a tightening of restrictions fails to reduce net outflows as it provokes a sizeable decline in gross inflows, mainly driven by foreign investors.
International Monetary Fund
The paper developes a VAR macrofinance model of the Czech economy. It shows that yield misalignments from the yields implied by the macrofinance model partially determine subsequent yield changes over three to nine months. These yield misalignments tend to persist for a number of months. This persistence of the misalignments was explained by (a) the fact that the macro-economy influences asset markets only at lower frequencies, (b) the liquidity effect particularly during the times of capital inflows to Czech Republic, and (c) the fact that not all misalignments were greater than their historical one standard deviation.
Mr. Torsten M Sloek and Mr. Peter F. Christoffersen
There is ample empirical evidence for developed economies that asset prices contain information about future economic developments. But is this also the case in transition economies? Using a panel of monthly data for the Czech Republic, Hungary, Poland, Russia, Slovakia, and Slovenia for the period 1994-1999 it is shown that historical values for interest rates, exchange rates, and stock prices signal future movements in real economic activity. This result has significant implications for policymakers, and a composite leading indicator based on the three asset prices is presented, which contains information about the future development of economic activity.
MICHAEL S. BORISH and MICHEL NOËL

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