CNB Research News

Learning and Cross-Country Correlations in a Multi-Country DSGE Model

International spillovers in multi-country DSGE models are usually limited. This paper shows that introducing adaptive learning with time-varying coefficients increases the international correlation. In an estimated medium-scale two-country DSGE model, the increase in correlation stems from the time-varying coefficients and the use of simple forecasting models.

Interaction of Cyclical and Structural Systemic Risks: Insights from Around and After the Global Financial Crisis

This paper investigates the extent to which various structural risks exacerbate the materialisation of cyclical risk. The authors use a large database covering all sorts of cyclical and structural features of the financial sector and the real economy for a panel of 30 countries over the period 2006Q1–2019Q4 and show that elevated levels of structural risks may have an important role in explaining the severity of cyclical and credit risk materialisation during financial cycle contractions.

Does Macroprudential Policy Leak? Evidence from Non-Bank Credit Intermediation in EU Countries

This paper examines whether macroprudential policy actions affect shadow bank lending. The authors use a large dataset covering 23 European Union countries and synthesise a narrow measure of shadow banking focused on capturing credit intermediation by non-banks.

News versus Surprise in Structural Forecasting Models: Central Bankers’ Practical Perspective

This paper deals with the treatment of shocks in central banks’ forecasts. Within the rational expectations (RE) concept, which is widely used in structural macroeconomic models, the paper highlights the differences between news and surprise shocks. While arguing that most shocks in central bank forecasts should be treated as news, the paper also suggests using a limited information (LIRE) approach for practical reasons.

Monetary Policy Spillover to Small Open Economies: Is the Transmission Different under Low Interest Rates?

This paper explores the impact of low and negative monetary policy rates in core world economies on bank lending in four small open economies – Canada, Chile, the Czech Republic and Norway.

The Recovery Plan for Europe and its Importance for the Future of European Integration

This article provides a closer look at the triple meaning of the European recovery plan (NGEU). It is the largest fiscal transfer in the history of the EU, a novelty in European financial markets and, last but not least, a tool for transforming the European economy. Unlike previous common financial instruments, the plan does not create a two-speed Europe, because it involves all EU Member States, not just the euro area countries.

EU Foreign Trade During the Pandemic Crisis

This article focuses on international trade, using EU data to analyse the nature of the pandemic shock and discussing its implications for monetary policy. The authors conclude that the original supply nature of the crisis in 2020 turned into a demand problem in 2021, to which monetary policy should have reacted by raising monetary policy rates to contain inflation and keep it on target.

The End of the LIBOR Era in Financial Markets: What Lies Ahead?

This article focuses on financial markets and the transformation of benchmark rates, as 2021 was the last year when major interbank rates were used in trades on the London exchange. The article outlines the reasons for the rate reform and looks at what follows.

The CNB’s Approach to Setting the Capital Buffer for Other Systemically Important Institutions: Past and Present

This article presents the CNB’s approach to setting the capital buffer for mitigating risks associated with institutions’ systemic importance in the CRD IV regulatory environment and describes the changes to that approach caused by the transposition of CRD V into Czech law. It also explains the reasons for the different approaches applied in the EU Member States before the transposition of CRD V and summarises the legislative measures taken to harmonise those approaches.

Inflation Expectations

The inflation expectations of households, firms and financial markets fundamentally affect their actions and decisions and hence also the overall economy and the actual rate of inflation. As expectations are largely self-fulfilling, it is important for central banks to monitor inflation expectations and to shape them in the desired manner through their activities and communications. This article explains the importance of inflation expectations and describes the latest developments in this area.