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A Macroeconomic Forecasting Model of the fixed exchange rate regime for the oil-rich Kazakh economy
Hlédik, Tibor ; Musil, Karel ; Ryšánek, Jakub ; Tonner, Jaromír
This paper presents a semi-structural quarterly projection open-economy model for analyzing monetary policy transmission and macroeconomic developments in Kazakhstan during the period of the fixed exchange rate regime. The model captures key stylized facts of the Kazakh economy, especially the important role of oil prices in influencing the economic cycle in Kazakhstan. The application of the model to observed data provides a reasonable interpretation of Kazakh economic history, including the global crisis, through to late 2015, when the National Bank of Kazakhstan introduced a managed float. The dynamic properties of the model are analyzed using impulse response functions for selected country-specific shocks. The model’s shock decomposition and in-sample forecasting properties presented in the paper suggest that the model was an applicable tool for monetary policy analysis and practical forecasting at the National Bank of Kazakhstan. In a general sense, the model can be considered an example of a quarterly projection model for oil-rich countries with a fixed exchange rate.
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Quantifying the natural rate of interest in a small open economy : the Czech case
Hlédik, Tibor ; Vlček Jan
We identify the natural rate of interest in the Czech Republic as the real rate consistent with output at its equilibrium level and inflation at the target. To identify the rate, we use a (semi-)structural model featuring rational expectations and a forward-looking interest rate rule. Compared to the mainstream literature, the model provides a comprehensive set of cross-restrictions with respect to unobserved variables, including that of the natural rate. Furthermore, we argue that the natural rate of interest in a small open economy is a function of equilibrium real growth adjusted for equilibrium real exchange rate appreciation. Our findings suggest that the natural interest rate in the Czech Republic was around 1 percent in 2017. The current decline of the natural rate from its peak in 2015 mainly reflects the renewed appreciation of the equilibrium real exchange rate on the back of robust real GDP growth.
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A DSGE Model with Financial Dollarization: the Case of Serbia
Djukić, Mirko ; Hlédik, Tibor ; Polanský, Jiří ; Trajčev, Ljubica ; Vlček, Jan
We amend a DSGE model of a small open economy by adding financial euroization in order to capture the main channels of the monetary transmission mechanism in match the Serbian data. In contrast to the standard DSGE workhorse, the model encompasses commercial banks and foreign-exchange-denominated deposits and loans. Given these features, the model is well suited to evaluating effects of the nominal exchange rate on the financial wealth and consumption of households. The model structure, including optimization problems and first-order conditions, is provided in the paper. The model properties are tested to match the stylized facts of dollarized economies. Specifically, the model is calibrated to the Serbian data, and a model-consistent multivariate filter is used to identify unobserved trends and gaps.
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Essays on Monetary Policy and Estimation of DSGE Models
Rychalovska, Yuliya ; Slobodyan, Sergey (advisor) ; Žák, Milan (referee) ; Hlédik, Tibor (referee)
The thesis is motivated by current practice of policy conduct implemented by many monetary institutions. In particular, a new operational framework, inflation targeting, has been introduced by the most advanced central banks. In addition, DSGE models became widely used for systematic evaluation of macroeconomic effects of monetary policy and forecasting. In the first chapter of the thesis, I assess possible risks and challenges of implementing inflation targeting strategy in more complicated, but at the same time more realistic, DSGE model economies. I focus on analysis of optimal monetary policy and welfare in a DSGE model of a small open economy with multiple domestic sectors, which have different structural characteristics. The findings suggest that openness to trade as well as sector-specific features do matter for monetary policy design thus generating important implications for optimal stabilization objectives and social welfare. The ranking of simple rules indicates that flexible CPI targeting regime is able to closely replicate the optimal solution and outperform the policy of domestic inflation stabilization. Finally, the sensitivity analysis demonstrates that the presence of sectoral asymmetries may alter the relative performance of alternative policy rules. The second part of the thesis...
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Incorporating Judgments and Dealing with Data Uncertainty in Forecasting at the Czech National Bank
Brůha, Jan ; Hlédik, Tibor ; Holub, Tomáš ; Polanský, Jiří ; Tonner, Jaromír
This paper focuses on the forecasting process at the Czech National Bank with an empha- sis on incorporating expert judgments into forecasts and addressing data uncertainty. At the beginning, the core model and the forecasting process are described and it is presented how data and the underlying uncertainty are handled. The core of the paper contains five case studies, which reflect policy issues addressed during forecasting rounds since 2008. Each case study first describes a particular forecasting problem, then the way how the issue was addressed, and finally the effect of incorporating off-model information into the forecast is briefly summarized. The case studies demonstrate that a careful incor- poration of expert information into a structural framework may be useful for generating economically intuitive forecasts even during very turbulent times, and we show that such judgements may have important monetary policy implications.
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Comparation of Alterantive Policy Rules in a Structural Model of the Czech Republic
Hledík, Tibor ; Tomšík, Vladimír (advisor) ; Kodera, Jan (referee) ; Komárek, Luboš (referee)
The main goal of this thesis has been a study of alternative policy rules in a small structural model calibrated to capture the Czech economy. After the overview of the historic development of economic theory and structural modeling we have specified a small open economy model that has served as a main technical tool for the analysis. The model represents a framework, where forward-looking model-consistent expectations are formed with respect to the development of the exchange rate and interest rates. Inflation expectations are forward looking too with some nominal rigidities in inflation dynamics. The model's structure is relatively simple. The IS curve captures the dynamics of real GDP, that exhibits real rigidity, motivated by habit formation or investment adjustment costs. In our specification the real GDP is a function of (the deviation of) real XR, real IR and foreign demand (from corresponding equilibrium levels). The Phillips-curve is based on the F-M type wage setting behavior, therefore it enables to consider domestic prices, that are modeled as mark-ups over wages. CPI inflation then consists of domestic, imported and administered inflation, including the effect of any indirect taxes changes. The exchange rate is modeled by the UIP arbitrage condition. Exchange rate expectations are forward-looking, but with some inertia in expectation formation. Interest rates with one year maturity are also modeled as an arbitrage condition on the money market, they are fully model-consistently forward looking. The model is closed by a Taylor-type forward-looking policy rule. The interest rate exhibits some inertia and feeds back from deviation of inflation from target and output from its equilibrium. The specification (parameterization) of the rule is general enough to examine CPI and domestic inflation targeting. The model specification has been followed by empirical work leading towards the implementation of the previously specified model on Czech data. Based on the sources of the Czech Statistical Office, Czech National Bank, Consensus Economics Inc., we first processed the data by executing seasonal adjustment and other transformations necessary for being consistent with the definition of model variables. The database has been created by an automatic MATLAB based routine, therefore the calculations were relatively easy to update. The database being completed, we have set up a Kalman-filter for determining equilibrium values for the real interest rate, exchange rate and output. At the same time through Kalman filtering we identified all model residuals. We paid special attention to the decomposition of the output gap and discussing In order to assess the overall dynamic properties of the model and judge how well the model fits the data, we conducted several exercises. First we decomposed some of the important endogenous variables of the model to shocks to see, whether the identified shocks are in line with our intuition and episodes of the recent Czech economic history. We found, that the shocks are not in contrast with some of the clearly distinguishable episodes. After the shock decomposition we run in-sample simulations to see, how well the model is able to fit the reality two years ahead. We found the overall results quite encouraging. We were able to fit quite well the output gap as well as MP inflation. Domestic inflation has been slightly more inertial in model simulations than in reality, but even in this case the results were acceptable. The model was not able to fit the 2001-2 appreciation of the nominal XR footnote{Understandably it neither forecasted well the fast fall in inflation after the appreciation period.}, which is not a big surprise. The model calibration part of the thesis concludes, that the model fits the data and economic story reasonably well.
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