CNB Research News

Assessment of the Nature of the Pandemic Shock: Implications for Monetary Policy

In this paper, we contribute to the debate on the extent to which the contraction of economic activity, largely related to anti-epidemic measures (lockdowns), can be interpreted as a negative demand anti-inflationary shock and what proportion of the observed decline in GDP can be  attributed to a negative supply shock, i.e. an inflationary cost shock. An empirical comparison of the pandemic-induces crisis with the global financial and economic crisis and model simulations allow us to identify the pandemic shock as a negative supply shock. A reassessment of the macroeconomic story together with a gradual, but steady, recovery in economic activity enabled the Czech National Bank to appropriately tighten its monetary policy from mid-2021 onwards.

Borrower-Based Macroprudential Measures and Credit Growth: How Biased is the Existing Literature?

In this paper, we collect more than 700 estimates from 34 studies on the effect of borrower-based measures on bank loan provision. On average, the introduction or tightening of borrower-based measures reduces annual credit growth by 1.6 pp. Using a battery of empirical tests, we verify the presence of a strong publication bias, especially against positive and statistically non-significant estimates. The bias-corrected coefficient is about half the size of the uncorrected mean of the collected estimates but remains safely negative.

How Credit Improves the Exchange Rate Forecast

This paper presents a simple reduced-form error correction model for forecasting nominal exchange rates. The model is inspired by the classical monetary model of exchange rates. However, the commonly used monetary aggregates were replaced by loans to corporations. We empirically show statistically and economically significant exchange rates forecastability in the medium and long run, and we also present some findings on predictability even in the short run. In short, our results suggest that corporate loans are a significant driver behind exchange rate movements.

Meeting Investor Outflows in Czech Bond and Equity Funds: Horizontal or Vertical?

This paper explores liquidity management practices in Czech open-ended bond and equity funds. We reconstruct cash flows stemming from investors and securities and cash flows related to purchases and sales in portfolios and margin calls to study liquidity transformation and liquidity management in investment funds. The paper points to multiple factors, such as portfolio illiquidity and current market conditions, that influence the joint behavior between investor redemptions and funds’ liquidity management.

How Have Firms' Price Increases Contributed to the Current Inflation in the Euro Area?

The story of today's inflation in the euro area started last year after the pandemic shutdowns when companies had to grapple with shortages of parts and materials amid almost sky-rocketing prices of commodities and transport. This article analyses developments in inflation in recent years and shows that companies actually did increase their prices more than would be expected based on historical evidence of the impact of input prices on output prices. Price increases were more pronounced in countries which entered the pandemic with a "more overheated" economy, i.e. much tighter labour market and stronger domestic demand.

FX Markets in the Age of Fintech

Digitalisation has gradually changed all financial markets to a greater or lesser degree, and FX trade is no exception. However, the forex market is quite specific, being decentralised, fragmented, partially opaque and largely unregulated, so determining the exact impact of technological change on it is not as straightforward as it is for stocks, bonds, exchange-traded derivatives or even crypto assets. This article describes how fintech is affecting the foreign exchange market. A whole range of innovations, brought about mainly by digitalisation, have affected the functioning of the market and are likely to have lasting and significant economic impacts.

Current Trends in Macroeconomic Modelling in Central Banks in Light of the Turbulent Nature of Recent Events

Forecasters worldwide are often criticised for failing to forecast certain events. They also face criticism that their forecasts do not materialise. It is human nature to perceive negative events much more strongly than positive ones. This article looks at how modelling systems used by central banks adapt to events for which there are strong economic regularities as well as unpredictable events such as pandemics and conflicts, i.e. to completely new challenges. Central banks have the tools to deal with unpredictable events. However, some degree of inaccuracy is unavoidable, and this must be reduced as more information about forthcoming events becomes available.

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.

Housing Markets and Their Links With Monetary Policy

Central banks monitor house prices partly because significant imbalances and a major correction on the housing market pose a threat to financial and general macroeconomic stability. House prices have risen in many countries around the world in recent years. This article describes house price developments mainly in the countries that are regularly covered by Central Bank Monitoring. It analyses how the housing market affects headline inflation and hence also monetary policy decisions, and presents the latest findings on how monetary policy affects the housing market.