Monetary Policy in a Small Open and ConvergingMonetary Policy in a Small Open and Converging
Economy: the Czech CaseEconomy: the Czech Case inin thethe CEECEE PerspectivePerspective
Czech National Bank
Mojmír Hampl
Vicegovernor
Prague, September 2, 2013
““A nice art collection and quiet surroundings do notA nice art collection and quiet surroundings do not
makemake a First World central banka First World central bank”” ((CalvoCalvo, 2006), 2006)
2
3
Outline
• A bit of ancient history
• Disinflation strategies in 1990s
• Economic convergence and the real exchange rate
• Implied systematic nominal appreciation and its implication for
the balance sheets of households and firms
• ‘Original sin’ and monetary policy after the Lehman collapse
and later
• Summary
A bitA bit ofof ancientancient historyhistory
4
Inflation (Jul 1921 – May 1924, in %) PL, HU, A
0
100
200
300
400
500
600
700
800
900
1000
1921M
71921M
91921M
111922M
11922M
31922M
51922M
71922M
91922M
111923M
11923M
31923M
51923M
71923M
91923M
111924M
11924M
31924M
5
A bitA bit ofof ancientancient historyhistory
5
Inflation (Jul 1921 – May 1924, in %) - Czechoslovakia
‐30
‐20
‐10
0
10
20
30
1921M
71921M
91921M
111922M
11922M
31922M
51922M
71922M
91922M
111923M
11923M
31923M
51923M
71923M
91923M
111924M
11924M
31924M
5
Early 1990s and Inflation inEarly 1990s and Inflation in CECsCECs
After the price liberalization Czechs disinflated below 10%
threshold relatively quickly
6
0
10
20
30
40
50
60
70
80
90
1991 1992 1993 1994 1995 1996
The Czech Republic Hungary Poland
Inflation (1991-1996, CPI, in %)
Price
liberalization
Early 1990s and the Exchange Rate inEarly 1990s and the Exchange Rate in CECsCECs
Behind was an implicit peg against DM&USD basket, while
Hungary and Poland used a crawling peg
7
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2.60
2.80
1991 1992 1993 1994 1995 1996
The Czech Republic Hungary Poland
Hungary
followed a
crawl rate of
around 15 %
and later 20%
a year
Exchange rate against USD (1991-1996, index, 1991 = 1)
Late 1990sLate 1990s -- Early 2000s and Inflation inEarly 2000s and Inflation in CECsCECs
Later, after the turmoil in 1997, Czechs adopted inflation
targeting and disinflated rapidly, followed by Poland in
2001
8
0
2
4
6
8
10
12
14
16
1998 1999 2000 2001 2002 2003 2004
The Czech Republic Hungary Poland
Inflation (1998-2004, y-o-y, in %)
In contrary, Hungary did not
manage to disinflate
systemically below 5%
9
Czech Inflation since 2001
On average Czech inflation has been around 2% after 2001
‐0.50
0.50
1.50
2.50
3.50
4.50
5.50
6.50
7.50
2
0
0
1
Q
1
2
0
0
1
Q
3
2
0
0
2
Q
1
2
0
0
2
Q
3
2
0
0
3
Q
1
2
0
0
3
Q
3
2
0
0
4
Q
1
2
0
0
4
Q
3
2
0
0
5
Q
1
2
0
0
5
Q
3
2
0
0
6
Q
1
2
0
0
6
Q
3
2
0
0
7
Q
1
2
0
0
7
Q
3
2
0
0
8
Q
1
2
0
0
8
Q
3
2
0
0
9
Q
1
2
0
0
9
Q
3
2
0
1
0
Q
1
2
0
1
0
Q
3
2
0
1
1
Q
1
2
0
1
1
Q
3
2
0
1
2
Q
1
2
0
1
2
Q
3
2
0
1
3
Q
1
Inflation (2001Q1-2013Q1, CPI, y-o-y, in %)
10
Real Convergence
While the economy converged until 2010
‐7.50
‐5.50
‐3.50
‐1.50
0.50
2.50
4.50
6.50
2
0
0
1
Q
1
2
0
0
1
Q
3
2
0
0
2
Q
1
2
0
0
2
Q
3
2
0
0
3
Q
1
2
0
0
3
Q
3
2
0
0
4
Q
1
2
0
0
4
Q
3
2
0
0
5
Q
1
2
0
0
5
Q
3
2
0
0
6
Q
1
2
0
0
6
Q
3
2
0
0
7
Q
1
2
0
0
7
Q
3
2
0
0
8
Q
1
2
0
0
8
Q
3
2
0
0
9
Q
1
2
0
0
9
Q
3
2
0
1
0
Q
1
2
0
1
0
Q
3
2
0
1
1
Q
1
2
0
1
1
Q
3
2
0
1
2
Q
1
2
0
1
2
Q
3
2
0
1
3
Q
1
The Czech Republic Germany
Real GDP (2001Q1-2013Q1, y-o-y, in %)
11
Real Exchange Rate
That drew an appreciation of the real exchange rate
325.00
335.00
345.00
355.00
365.00
375.00
385.00
2
0
0
1
Q
1
2
0
0
1
Q
3
2
0
0
2
Q
1
2
0
0
2
Q
3
2
0
0
3
Q
1
2
0
0
3
Q
3
2
0
0
4
Q
1
2
0
0
4
Q
3
2
0
0
5
Q
1
2
0
0
5
Q
3
2
0
0
6
Q
1
2
0
0
6
Q
3
2
0
0
7
Q
1
2
0
0
7
Q
3
2
0
0
8
Q
1
2
0
0
8
Q
3
2
0
0
9
Q
1
2
0
0
9
Q
3
2
0
1
0
Q
1
2
0
1
0
Q
3
2
0
1
1
Q
1
2
0
1
1
Q
3
2
0
1
2
Q
1
2
0
1
2
Q
3
2
0
1
3
Q
1
Real Exchange Rate (2001Q1-2013Q1, EUR, 100*ln)
12
Nominal Exchange Rate
Which, thanks to the zero inflation differential, went fully through the
nominal one (conv. trilemma – ER vs. growth vs. imbalances)
Average annual nominal appreciation reached 2.3% in 2000Q1-2012Q4
23.00
25.00
27.00
29.00
31.00
33.00
35.00
2
0
0
1
Q
1
2
0
0
1
Q
3
2
0
0
2
Q
1
2
0
0
2
Q
3
2
0
0
3
Q
1
2
0
0
3
Q
3
2
0
0
4
Q
1
2
0
0
4
Q
3
2
0
0
5
Q
1
2
0
0
5
Q
3
2
0
0
6
Q
1
2
0
0
6
Q
3
2
0
0
7
Q
1
2
0
0
7
Q
3
2
0
0
8
Q
1
2
0
0
8
Q
3
2
0
0
9
Q
1
2
0
0
9
Q
3
2
0
1
0
Q
1
2
0
1
0
Q
3
2
0
1
1
Q
1
2
0
1
1
Q
3
2
0
1
2
Q
1
2
0
1
2
Q
3
2
0
1
3
Q
1
Nominal Exchange Rate (2001Q1-2013Q1, CZK/EUR)
13
Monetary Policy
EMU comparable average inflation together with the trend real
appreciation moved the policy rate (and interest rates in
general) close or even below the ECB rates
‐0.50
0.50
1.50
2.50
3.50
4.50
5.50
2
0
0
1
Q
1
2
0
0
1
Q
3
2
0
0
2
Q
1
2
0
0
2
Q
3
2
0
0
3
Q
1
2
0
0
3
Q
3
2
0
0
4
Q
1
2
0
0
4
Q
3
2
0
0
5
Q
1
2
0
0
5
Q
3
2
0
0
6
Q
1
2
0
0
6
Q
3
2
0
0
7
Q
1
2
0
0
7
Q
3
2
0
0
8
Q
1
2
0
0
8
Q
3
2
0
0
9
Q
1
2
0
0
9
Q
3
2
0
1
0
Q
1
2
0
1
0
Q
3
2
0
1
1
Q
1
2
0
1
1
Q
3
2
0
1
2
Q
1
2
0
1
2
Q
3
2
0
1
3
Q
1
CNB Repo Rate ECB Key Refinancing Rate
Policy Rate (2001Q1-2013Q1, in %)
14
‘Original Sin’ in CEEC
Combination of all these led to practical non-existence of
foreign currency loans for households and only limited
amount for firms
0
20
40
60
80
100
LV EE HU RO LT PL BG SI SK CZ EA AT BE SE
Households Corporates
Foreign currency loans (2008, in % of total loans)
Source: CNB, IFS, IMF
15
Exchange Rate after the Lehman Collapse
This proved to be of critical importance after the collapse of Lehman
brothers
Exchange rate depreciated in all three countries, but with no foreign
currency loans one sees it as a welcome adjustment, while …
0.8
0.9
1
1.1
1.2
1.3
1.4
CZK HUF PLZ
Exchange rate against EUR (index, 31.12.2007 = 1)
Depreciation peaked in
February 2009
16
Monetary Policy after the Lehman Collapse
Czechs started to cut the interest rates already in August
2008, but Hungarians, and to less extent Poles, had to
defend the exchange rate
1
3
5
7
9
11
/2
/2
0
0
8
1
/2
3
/2
0
0
8
2
/1
3
/2
0
0
8
3
/5
/2
0
0
8
3
/2
7
/2
0
0
8
4
/1
7
/2
0
0
8
5
/1
2
/2
0
0
8
6
/2
/2
0
0
8
6
/2
3
/2
0
0
8
7
/1
4
/2
0
0
8
8
/4
/2
0
0
8
8
/2
5
/2
0
0
8
9
/1
5
/2
0
0
8
1
0
/6
/2
0
0
8
1
0
/2
7
/2
0
0
8
1
1
/1
9
/2
0
0
8
1
2
/1
0
/2
0
0
8
1
2
/3
1
/2
0
0
8
1
/2
2
/2
0
0
9
2
/1
2
/2
0
0
9
5
.3
.2
0
0
9
2
6
.3
.2
0
0
9
1
7
.4
.2
0
0
9
1
1
.5
.2
0
0
9
6
/1
/2
0
0
9
6
/2
2
/2
0
0
9
The Czech Republic Hungary Poland
Policy rates (2.1.2008 – 30.6.2009, in % )
17
Monetary Policy Nowadays
After short recovery in 2010-2011 worsening economic
situation declined inflation to very low level nowadays
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1
/1
1
2
/1
1
3
/1
1
4
/1
1
5
/1
1
6
/1
1
7
/1
1
8
/1
1
9
/1
1
1
0
/1
1
1
1
/1
1
1
2
/1
1
1
/1
2
2
/1
2
3
/1
2
4
/1
2
5
/1
2
6
/1
2
7
/1
2
8
/1
2
9
/1
2
1
0
/1
2
1
1
/1
2
1
2
/1
2
1
/1
3
2
/1
3
3
/1
3
4
/1
3
The Czech Republic Hungary Poland
For Hungary it is the
lowest inflation everInflation (11/2011-04/2013, CPI, y-o-y, in %)
18
Monetary Policy Nowadays
But yet central banks keep very different level of policy rates,
as the term premium and exchange rate matter
0
1
2
3
4
5
6
7
8
1
/3
/2
0
1
1
1
/3
1
/2
0
1
1
2
/2
8
/2
0
1
1
3
/2
4
/2
0
1
1
4
/2
1
/2
0
1
1
5
/1
9
/2
0
1
1
6
/1
6
/2
0
1
1
7
/1
4
/2
0
1
1
8
/1
1
/2
0
1
1
8
.9
.2
0
1
1
6
.1
0
.2
0
1
1
3
.1
1
.2
0
1
1
1
2
/1
/2
0
1
1
1
2
/2
9
/2
0
1
1
1
/2
6
/2
0
1
2
2
/2
3
/2
0
1
2
3
/2
2
/2
0
1
2
4
/1
9
/2
0
1
2
5
/1
7
/2
0
1
2
6
/1
4
/2
0
1
2
7
/1
2
/2
0
1
2
8
/9
/2
0
1
2
9
/7
/2
0
1
2
1
0
/9
/2
0
1
2
1
1
/6
/2
0
1
2
1
2
/5
/2
0
1
2
1
/2
/2
0
1
3
1
/3
0
/2
0
1
3
2
/2
7
/2
0
1
3
3
/2
7
/2
0
1
3
4
/2
4
/2
0
1
3
5
/2
2
/2
0
1
3
The Czech Republic Hungary Poland
CNB lowered its policy rate
to zero on November 2, 2012Policy rates (3.1.2011 – 7.6.2013, in % )
19
Summary
• Strategy of low inflation pays off
• Combination of low inflation a trend real appreciation leads to a
systematic nominal appreciation and ‘below EMU level’ of
nominal interest rates
• While this is a zero game for exporters (real appreciation would
happen anyway) it helps to avoid the Calvo’s ‘Original Sin’, i.e.
the problem of foreign currency loans
• Leaves monetary policy focused on price stability
TT
Thank you for your attention.
20