Microsoft Word Thesis Gent (1). doc

Table 1. Descriptions of variables 
Indicators 
Variable 
Description 
Credit Risk 
DEFRA 
Credit risk defined as NPL ratio 
Interest rate 
IR_SA 
Long-term interest rate, seasonally adjusted 
Inflation 
L_CPI_SA Inflation of CPI, seasonally adjusted 
Exchange Rate 
L_ER_SA Exchange rate (CZK/USD), seasonally adjusted 
GDP 
L_GDP 
Real GDP based on expenditures approaches (sum 
of investments, net exports, consumption and 
government purchases) 
Unemployment rate 
UNEMP 
Unemployment rate 
 
 
 
 
 

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Figure 13. Graphic view of macroeconomics indicators in level series expressed 
percentage 
.02
.04
.06
.08
.10
.12
02
03
04
05
06
07
08
09
10
11
DEFRA
.032
.036
.040
.044
.048
.052
.056
02
03
04
05
06
07
08
09
10
11
IR_SA
4.55
4.60
4.65
4.70
4.75
4.80
02
03
04
05
06
07
08
09
10
11
L_CPI_SA
2.6
2.8
3.0
3.2
3.4
3.6
3.8
02
03
04
05
06
07
08
09
10
11
L_ER_SA
12.1
12.2
12.3
12.4
12.5
02
03
04
05
06
07
08
09
10
11
L_GDP
.04
.05
.06
.07
.08
.09
02
03
04
05
06
07
08
09
10
11
UNEMP
 
Note: Data used from CNB, constructed by author. Variables are expressed on 
percentage (CPI, ER and GDP are in log). Only long-term interest rate is stationary. 
 
6.2.1 Czech Republic is GDP Growth Rate 
GDP in a country serves as an indicator of country’s economy wealth and living 
standards. However, as there are transactions that are not reported to the government, 
some critics say that GDP does not clearly show the real economic wealth of a country. 
If we take a look for the average quarterly GDP growth from 2002 to 2011 was 0.78 
percent, where the highest GDP growth since 2002 was 2.37 percent in first quarter of 

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2007 and the lowest was recorded -3.30 percent on March of 2009. Specifically, in 
fourth quarter of 2011 the GDP in Czech Republic contracted 0.1 percent over earlier 
quarter. Czech economy is considered as one the most developed and industrialized. 
Czech Republic is one of the most stable and successful among of the previous 
Communist countries in comparison with other emerging democracies in CEE 
countries. Furthermore characteristics, which makes the country’s economy stable and 
developed is that as country has developed infrastructure and its population is well 
educated 
6.2.2 Czech Republic is inflation rate (CPI) 
In the Czech Republic the inflation rate is measured based on the Consumer Price Index 
(CPI), which shows the price changes of standard packages of goods and services 
households consume. The inflation is measured based on how much the CPI increases 
in percentage terms for a period compared to the CPI of the preceding period. If the 
prices have increased, it means there is inflation in a country, but if the prices decrease 
it means that there is deflation. 
Thus, the inflation rate in the Czech Republic for the period of 2002 to 2011was on 
average 1.06 percent, and reached the highest level in the fourth quarter of 2011 at 1.18 
percent and the lowest rate in the fourth quarter of 2002 at 0.94 percent. Specifically, in 
the last quarter of 2011 the inflation rate was at 1.18 percent.