Adam Gersl

FOREIGN EXCHANGE INTERVENTIONS UNDER INFLATION TARGETING: THE CZECH EXPERIENCE

This paper discusses the role of foreign exchange interventions in the inflation-targeting regime, focusing on the Czech experience since 1998. It proposes criteria for assessing whether the interventions are consistent with the inflation targeting. While the CNBs interventions in mid- 1998 and in 2002 pass these criteria easily, the judgement might be more uncertain concerning the interventions in early-1998 and in 1999/2000. It is also stressed that the literature on managed floating usually ignores the difficulty in defining clear procedural rules for the interventions. This contrasts with the procedures guiding the interest rate decisions under the inflation targeting regime, which may occasionally create tensions in the policy regime, as demonstrated by the Czech experience, too. The interventions effectiveness in the Czech Republic is also discussed. It seems that sometimes they might have had an immediate impact lasting up to 2 or 3 months, but no strategy can be identified that would work in all episodes. Moreover, even many of the successful interventions were not able to prevent quite prolonged periods of exchange rate overvaluation in 1998 and in 2002. It is concluded that the signalling role of foreign exchange interventions is more important than their market-equilibrating effect, implying a rather unstable transmission between the central bank actions and the market reactions. Finally, the paper analyses the sterilisation costs, which are shown to have been quite substantial in the Czech Republic. It is argued that the financial sustainability of the interventions is quite important for their credibility and effectiveness.

Credit Growth and Financial Stability in the Czech Republic

The Czech Republic had experienced a credit boom similar to those in other converging economies in the pre-crisis years. Nevertheless, the consequences of this credit boom were limited as was the impact of the global crisis on domestic financial institutions. This paper describes the developments in the Czech banking sector and explains how the tough macroeconomic environment in the Czech Republic acted as a strong tool of macroprudential policy. It concludes that although it is difficult to tame credit booms in small converging economies, a concerted set of microprudential and macroprudential measures, including monetary and fiscal ones, may ensure some success.

Countercyclical Capital Buffers and Credit-to-GDP Gaps: Simulation for Central, Eastern, and Southeastern Europe

Under Basel III, banks are required to build up countercyclical capital buffers during periods of excessive credit growth to cover future credit losses. Based on a review of the credit boom episodes in sixteen Central, Eastern, and Southeastern European countries during 2000s, two measures of excessive credit are calculated: one based on the Hodrick-Prescott filter, as suggested by the Basel Committee for the activation of the countercyclical buffer, and the other based on an estimate of equilibrium credit. While the filtering-based measure signals future credit losses quite well, using the measure based on equilibrium credit improves the forecast of future deleveraging and its impact on GDP.

Predikce využívající experimentální trhy

According to the effective market theory, the stock prize on an effective market is the best estimate of the stocks current value. This is the basic assumption for predictions using experimental markets. This article describes the first experimental market organised in the Czech Republic, the experimental political market for Czech parliamentary elections in June 2002. In the beginning we briefly describe the methodology of the predictions via electronic markets. Than we give some description of our market- number of traders, their individual results, development of the market activity in time, etc. Finally we compare the result of our election market with the traditional opinion polls. On the basis of his comparison we discuss the advantages and the limitations of the prediction using the experimental markets.