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Stress testing the Czech banking system: Where are we? Where are we going?
Čihák, Martin ; Heřmánek, Jaroslav
This note summarizes the various outputs from the CNB research project Stress Testing for Banking Supervision. The note describes the current status of the project by presenting the latest stress test results and by comparing the methodology of these tests with those presented by other central banks. Finally, the note suggests further steps to improve the stress testing program at the CNB, such as strengthening credit risk modeling, including by engaging commercial banks in the exercise.
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External and fiscal sustainability of the Czech economy: a quick look through the IMF's night-vision goggles
Bulíř, Aleš
The paper presents the rationale for spreadsheet-based debt sustainability assessments. Policymakers can use these exercises in two ways. First, assessments of possible debt developments provide “reality checks” of macroeconomic projections. Second, the financial stability exercise may indicate vulnerability to crises. Empirically, using the IMF debt sustainability template, the paper finds that the external position of the Czech Republic appears sustainable under most plausible history-based scenarios.
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Designing stress tests for the Czech banking system
Čihák, Martin
The note discusses key issues involved in designing a suitable set of stress tests for the Czech banking system. The aim of the note is to propose stress tests that could be used by the Czech National Bank on a regular basis to assess the soundness of domestic banks, both for purposes of macroprudential surveillance and for banking supervision.
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Stress testing: a review of key concepts
Čihák, Martin
The note is a review of the literature on the quantitative methods used to assess the vulnerabilities of financial systems to risks. In particular, the author focuses on the role of system-wide stress testing. He summarizes the recent developments in the literature, highlighting topics relevant for the Czech case. He presents the key concepts relating to systemwide stress tests, overviews the stress tests performed by central banks and international financial institutions, and discusses conceptual issues relating to modeling of individual risk factors.
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Foreign exchange interventions under inflation targeting: the Czech experience
Holub, Tomáš
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. It is also stressed that the literature on managed floating usually ignores the difficulty in defining clear procedural rules for the interventions.
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Targeting inflation under uncertainty: policy makers's perspective
Šmídková, Kateřina
Reflecting the further progress of the methodological debate inside the CNB, this paper aims to provide suggestions to policy makers as to which methods could be used to assess uncertainty during the monetary policy decision process. Suggestions for each stage of the process are summarised in the final chapter. These take into account the findings of surveys of three very distinct sources – the economic literature on monetary policy under uncertainty, the managerial literature on decision analysis, and the real-life strategies of five central banks.
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Inflation targeting: To forecast or to simulate?
Skořepa, Michal ; Kotlán, Viktor
Writers differentiate between two basic ways of assessing future inflation: forecast and simulation. A forecast is the most likely picture of the future. In a forecast, all agents are assumed to behave in the most likely way. A simulation, on the other hand, is the most likely picture of the future if the behaviour of one agent follows a predetermined path or is generated using a selected reaction function.
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Empirical Evidence from Central and Eastern European Countries
Geršl, Adam ; Seidler, Jakub
Excessive credit growth is often considered to be an indicator of future problems in the financial sector. This paper examines the issue of how to determine whether the observed level of private sector credit is excessive in the context of the “countercyclical capital buffer”, a macroprudential tool proposed in the new regulatory framework of Basel III by the Basel Committee on Banking Supervision. An empirical analysis of selected Central and Eastern European countries, including the Czech Republic, provides alternative estimates of excessive private credit and shows that the HP filter calculation proposed by the Basel Committee is not necessarily a suitable indicator of excessive credit growth for converging countries.
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What Central Banks Can Learn from It
Brázdik, František ; Hlaváček, Michal ; Maršál, Aleš
This survey gives insight into the ongoing research in financial frictions modeling. The recent financial turmoil has fueled interest in operationalizing financial frictions concepts and introducing them into tools for policy makers. The rapid growth of the literature on these issues is the motivation for our review of the presented approaches. The empirical facts that motivate the inclusion of financial frictions are surveyed.
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