CNB Research News

Does Macroprudential Policy Leak? Evidence from Shadow Bank Lending in EU Countries

Economic Modelling, 2024, Vol. 132, pp. 1-13.

Holding the Economy by the Tail: Analysis of Short- and Long-run Macroeconomic Risks

Empirical Economics, 2024, Vol. 66(4), pp. 1443-1489.

Understanding Inflation Expectations: Data, Drivers and Policy Implications

We investigate inflation expectations and their measures in the context of the 2022 inflation surge in the Czech Republic. Using data and econometric analyses, we explore how inflation expectations are formed and how they may affect inflation developments. To capture the overall trend of inflation expectations in the Czech economy, we develop a Common Inflation Expectations index. Additionally, we present an extension of the CNB's g3+ model incorporating endogenous expectation premiums that reflect elevated inflation expectations. 

Wage-Price Spirals: A Risk-Based Approach

We propose a framework based on quantile regression to assess the risk of simultaneous rapid growth in wages and prices. We show that for the UK and US, the risk of such growth in wages and prices coincides with the risk of their heightened persistence or even acceleration. The materialization of the risk then defines the occurrence of a wage-price spiral. The proposed framework allows us to identify forthcoming episodes of elevated wage-price spiral risk and episodes of its materialization. 

Annual Assessment of Forecasts Included in GEO in 2023

This article assesses how successful individual institutions were in forecasting inflation and economic growth last year. The war in Ukraine and Europe's energy crisis affected last year's forecasts, especially the long-term ones. The optimistic GDP growth outlooks for 2023 did not materialise for European states (except Russia), while non-European states and Russia saw higher growth. Inflation in 2023 was unexpectedly high, except in China. The short-term interest rate forecasts for the euro area and the U.S. were underestimated. Exchange rate volatility decreased, and the dollar did not weaken as expected. The oil price forecasts remained slightly higher throughout the period.

Two Decades in the European Union: How Have They Been for the Visegrad Four States?

The article is a look back at the twenty-year membership of the Czech Republic, Hungary, Poland and Slovakia in the EU. It reminds us that the greatest benefits for the entire EU are brought by the four freedoms, i.e. the free movement of goods, services, capital and people. The article also looks in more detail at the progress the selected states have made in economic convergence and how successful they have been in terms of allocating European funds.

Impacts of Climate Change on Monetary Policy

Climate change is a major challenge, with increasing extreme weather affecting economies around the world and influencing central banks' monetary policies. As the environmental impacts and climate-related policies intensify, central banks face risks to maintaining price stability. Climate shocks introduce fundamental changes to economies, complicating monetary policy. The current literature lacks clear conclusions on these impacts. This article identifies climate-induced shocks and, through global model simulations for long-term climate scenarios, offers recommendations for monetary policy-makers.

The Economic Vulnerability of the Czech Republic to Geopolitically Distant Countries

Growing geopolitical tensions around the world are contributing to the retreat of global economic integration, a process termed "geoeconomic fragmentation". This is manifesting through the redirection of trade flows in goods and services, the movement of capital and the migration of people. This article examines the Czech Republic's vulnerability in trade, particularly how geopolitical factors might disrupt trade ties. It identifies 150 strategically important products - critical for security, health, the green transition and energy self-sufficiency - for which the Czech Republic depends heavily on geopolitically distant countries.

Foreign Direct Investment Profitability Life Cycle: Application to the Czech Republic

The determinants of the current account balance vary from country to country. For countries that underwent economic transformation in the 1990s, past foreign direct investment (FDI) inflows were crucial. Analysing the FDI profitability life cycle helps us understand the external economic position. This article estimates the life cycle of initial direct investment in Central and Eastern European countries, finding that profitability peaks around the seventh year then gradually declines, with the life cycle completed after 18 years. If average Czech FDI inflows matched the 2015-2019 levels, absolute FDI earnings would rise until 2032. Without new FDI from 2023, earnings would drop to zero by 2040.

The History of Capital Flows in the Czech Republic

When it came into existence in 1993, the Czech Republic had low external debt, an approximately balanced current account and a stable koruna exchange rate as a nominal anchor for economic transformation. On the other hand, it suffered from its economy's weak external competitiveness and extremely low foreign exchange reserves. This article describes the 30 years of change in the Czech economy from a socialist closed, uncompetitive economy to a developed country fully integrated into the global economy, from the perspective of changes in its involvement in international financial flows.

How to Distinguish Price and Quantity Effects in International Trade in Goods

In recent years, global economic shocks have affected the prices and quantities of traded goods via different channels. Despite nominal increases in Czech exports and imports since 2019, breaking down these changes by prices and quantities, especially at the sectoral level, helps us understand their drivers and the implications for the Czech Republic's external balance and competitiveness. This article uses the Bennet decomposition to analyse international trade dynamics, illustrated with data aggregated by the main SITC categories. Since 2024, the CNB has applied this approach in the Chartbook of its Monetary Policy Report to break down changes in the international trade balance.

ECB and Financial Markets: Not Always on the Same Wavelength

In June, ECB lowered its interest rates for the first time since the pandemic, a move anticipated by financial markets. However, at the onset of 2024, markets were expecting the ECB to initiate rate cuts in April and continue aggressively throughout the year, diverging from the ECB's official communication. This article examines why financial markets might predict different monetary policy actions, suggesting that they prepare for "tail-risk" scenarios where unexpected economic trends necessitate rapid ECB adjustments. This divergence is driven by the markets' quick reactions to new economic data, often overemphasising negative news, especially if the ECB stresses the data-driven approach.