CNB Research News

Nowcasting Macroeconomic Variables Using High-Frequency Fiscal Data

Macroeconomic data are published with a time lag, making room for nowcasting macroeconomic variables using fiscal data. This article employs two nowcasting models, bridge equations and MIDAS regressions, which link quarterly macroeconomic variables to monthly fiscal data for the Czech Republic. Bridge equations are found to be particularly suitable for nowcasting the wage bill using social contributions. Moreover, the forecast accuracy of the wage bill is further increased when the available daily data on social contributions are taken into account in the nowcasting models.

Monetary Policy and the Financial Cycle: International Evidence

This article evaluates the extent to which inflation-targeting central banks appear to have used their interest rate policies to respond to financial imbalances beyond the reactions to the traditional Taylor-rule variables. The historical decompositions of interest rates reveal that most central banks raised interest rates in response to asset prices and credit booms in the past, including in the years preceding the global financial crisis. The financial crisis of 2008 is found to have had less of an impact on credit and real housing prices in countries where the interest rate responses to financial cycles were accompanied by macroprudential measures.

Price Level Targeting with Imperfect Rationality: A Heuristic Approach

The article compares price level targeting and inflation targeting regimes in a New Keynesian model with bounded rationality. Economic agents form their expectations using heuristics – they choose between a few simple rules based on their past forecasting performance.  Several formulations of the forecasting rules are considered. While the potential benefits of price level targeting have been confirmed under certain assumptions, this regime is prone to instability in some model specifications.  The results thus suggest that inflation targeting constitutes a more robust choice for monetary policy.

Annual Assessment of the Forecasts Included in GEO

The article takes a look back at the forecasts presented in GEO last year and assesses how the various institutions succeeded in predicting future developments. The analysis shows that, probably due to the initial shock caused by the COVID pandemic, GDP growth forecasts tended to be pessimistic (lower than actual growth) and inflation was underestimated.

Economic Impacts of a Possible Halt in the Supply of Energy Commodities from Russia to Europe

This article provides a general description of the macroeconomic links, which are relevant to understanding the impacts of a possible halt in the flow of energy commodities from Russia. The authors present their own model simulation of the impacts on the euro area economy, which points to a pronounced inflationary effect amid a sizeable decline in economic activity. The article concludes with a summary of general recommendations to minimise the negative impacts of a possible suspension of natural gas supplies from Russia.

In the Rhythm of the Music Industry

This article gives an insight into the music industry, which has gradually been affected by new technology and in the last two years also by the coronavirus pandemic, and its development over the last two decades. It also describes the still large and untapped potential this sector has with consumers. We believe the importance of running this article during the present time of war is encapsulated by the words of US singer Joseph Tyler: "Music makes things hurt less". Let's hope so.

Setting the upper LTV limit at the CNB

This article presents the CNB’s approach to setting the LTV limit. It recalls the main objective of applying this macroprudential instrument – to increase the resilience of domestic mortgage lenders – and summarises the positive and undesirable side-effects associated with calibrating the limit, changing it, and timing its introduction.

Bank of Japan: Thorny Road to the Inflation Target

This article describes monetary policy in Japan, looking at both the long-term trend and the current situation. For a long time, the Bank of Japan pursued accommodative monetary policy in an effort to tackle deflationary pressures, and for now, the current global surge in inflation has not affected Japan too much either. After describing Japan's macroeconomic and monetary policy developments in recent decades, the article goes on to discuss in greater detail the possible reasons for the country's markedly lower inflation compared with the rest of the world, and then examines Japan's current monetary policy dilemmas.