Oxford professor: The CNB apparatus is flawed and even councilors don't understand it
Jiří Zatloukal's interview with Professor John Muellbauer explores his recently published special report, coauthored with Janine Aron, on the functioning of the monetary policy apparatus of the Czech National Bank (ČNB).
The full interview covers the following questions and points of discussion:
- Did you work well with the Czech central bankers?
- In your opinion, you state that the monetary model of the Czech National Bank is often confusing and complicated, rather outdated, so of course it cannot reliably predict the future development of the Czech economy.
- At the same time, banks play an important role in the Czech economy.
- If we take into account the fact that the majority of the members of the bank board, as you state in the opinion, do not understand the model, and therefore not even its consequences for monetary transmission, then this is probably not an ideal situation for deciding on monetary policy...
- But does the ČNB model even make sense to operate?
- Do other central banks face the same problems, or is it a specific case of the ČNB?
Background
In January 2024, the Governor and Board of the Czech National Bank requested that we should prepare an independent review of the analytical framework used for policy analysis and forecasting for monetary policy making at the Czech National Bank, covering the set of core and satellite models as an integrated framework. They also encouraged observations on parts of the framework, and the way it is transformed to monetary policy recommendations and decisions. This Review evaluates in detail the capabilities of the New Keynesian DSGE-type core model and satellite models, considers the current forecasting process and the underlying assumptions and expert judgments, and assesses how the models’ findings and forecasts are communicated to the Board for monetary policy decision-making. We spent three days at the CNB in May for intensive meetings with the monetary policy group (MPG) and the macroprudential policy group, and individual meetings with all members of the Board and their advisers. Further issues were discussed in online meetings and via email correspondence. We were provided with detailed documentation, not all in the public domain. We were met with unfailing courtesy and willingness to cooperate. We were impressed by the sophistication and technical competence of the staff, and the modern technical infrastructure of IT systems, data management and software at the CNB.1 The CNB has become a leader in the regular application of macroprudential tools to manage the credit cycle, as documented in the CNB’s Financial Stability Reports.
