Interview of Eva Zamrazilová, CNB Deputy Governor
By Jan Lopatka (Reuters 11. 12. 2024)
The Czech central bank will develop a new economic model to help steer its monetary policy, Vice Governor Eva Zamrazilova said, in response to external assessments of its current policymaking tools which the governing board found to be insufficient.
The bank's seven-strong board has at times defied recommendations from its monetary department in recent years, mainly not heeding suggestions to hike interest rates more to quash inflation faster in 2022 and early 2023.
The external assessments recommended boosting research and creating additional tools for the board to steer policy.
The bank has been using a model of a type called DSGE, which put it alongside only three out of 22 surveyed central banks reliant on a single model of this type, Zamrazilova told Reuters in an interview.
There was too much rigidity in relying on the outcomes of the model in decision making, she said.
Most banks use more models, and the Czech bank will develop a new one from a group of models called semi-structural to work alongside with the current model, she said.
"The assessments stated that it is necessary to limit the concentration on the one and only model," she said in an interview on Tuesday. "A second (outcome) was to create a second fully-fledged model."
The shortfalls of the current model included assumptions that all Czech companies were owned by local investors, which was not accurate given half are foreign controlled, Zamrazilova said.
"That can then be the source of systematic errors" in the bank's forecast which helps guide policy, she said.
The current set-up worked fine during quiet periods but its shortfalls became apparent in crisis situations such as the coronavirus pandemic or war in Ukraine, she said.
Initial results from the new model could come in a year at the earliest, Zamrazilova said.
