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CNB: Michl Reaffirms His Monetarist Outlook, Flags Work On New Forecasting Model

CNB
EM BulletCzech RepublicBulletEmerging Market NewsCentral and Eastern Europe

The publication of the latest Central Banking interview with Governor Ales Michl yesterday may have been overshadowed by the Bank Board's rate decision, but sheds some light on the official's views on monetary policy. Note that the interview was conducted on November 15, but .

  • Michl warned against excessive reliance on forecasting models and committing an error which in the automotive sector is dubbed "automation complacency." The Governor said that "often, the best approach is to step back, apply judgement and adapt to specific circumstances."
  • According to the Governor, the CNB's dynamic stochastic general equilibrium (DSGE) forecasting model has (1) underplayed the role of money, (2) ignored the euroisation of the economy due to interest-rate differential with the eurozone, which weakened monetary policy transmission, and (3) was based on false assumptions about consumer behaviour in an inflationary environment - which is why the Bank Board defied its recommendations at the peak of the inflation episode.
  • Ales Michl said that today's data reflects the past, "especially when we look at year-on-year inflation," which is why he monitors the momentum of core inflation and trends in monetary aggregates. Michl specifically pointed to a three-month average of M2 as an important guide. In his view, monetary aggregates are often missing from forecasting models.
  • The Governor said that he does not anticipate any changes to the key macroprudential parameters, including the countercyclical buffer (CCyB) rate, in the near future.
  • The CNB commissioned a review of its models and may develop new ones, which could challenge the current universal DSGE model. Michl observed that the CNB is possibly one of only three central banks in the world that still uses a DSGE model.
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The publication of the latest Central Banking interview with Governor Ales Michl yesterday may have been overshadowed by the Bank Board's rate decision, but sheds some light on the official's views on monetary policy. Note that the interview was conducted on November 15, but .

  • Michl warned against excessive reliance on forecasting models and committing an error which in the automotive sector is dubbed "automation complacency." The Governor said that "often, the best approach is to step back, apply judgement and adapt to specific circumstances."
  • According to the Governor, the CNB's dynamic stochastic general equilibrium (DSGE) forecasting model has (1) underplayed the role of money, (2) ignored the euroisation of the economy due to interest-rate differential with the eurozone, which weakened monetary policy transmission, and (3) was based on false assumptions about consumer behaviour in an inflationary environment - which is why the Bank Board defied its recommendations at the peak of the inflation episode.
  • Ales Michl said that today's data reflects the past, "especially when we look at year-on-year inflation," which is why he monitors the momentum of core inflation and trends in monetary aggregates. Michl specifically pointed to a three-month average of M2 as an important guide. In his view, monetary aggregates are often missing from forecasting models.
  • The Governor said that he does not anticipate any changes to the key macroprudential parameters, including the countercyclical buffer (CCyB) rate, in the near future.
  • The CNB commissioned a review of its models and may develop new ones, which could challenge the current universal DSGE model. Michl observed that the CNB is possibly one of only three central banks in the world that still uses a DSGE model.