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CNB Research News

Quarterly Summary  2/2020

Published jointly by the Economic Research Division and the Financial Research Division

Dear All,

Welcome to the second issue of CNB Research News. This time, in a new layout.

Our mission remains the same. We plan to inform you roughly once every quarter about our latest articles, upcoming events and other topics related to research at the Czech National Bank. We hope this newsletter will help us to stay in touch with each other and exchange interesting ideas. 

Please, do not hesitate to contact us, to share your opinion or your own research output. We highly appreciate your feedback.

Sincerely Yours,

Jan Brůha and Simona Malovaná
On behalf of our research teams

 Our Latest Research

April 2020 – CNB WP 8/2019

Death to the Cobb-Douglas Production Function? A Quantitative Survey of the Capital-Labor Substitution Elasticity
by Sebastian Gechert, Tomáš Havránek, Zuzana Iršová, Dominika Ehrenbergerová

The paper shows that the large elasticity of substitution between capital and labor estimated in the literature to be, on average, 0.9, can be explained by publication bias and specific method and data choices. After correcting for these biases, the mean elasticity shrinks to 0.3, one-third of the simple average of all estimates. The weight of evidence accumulated in the empirical literature thus emphatically rejects the Cobb-Douglas specification.

Read more
April 2020 – CNB RPN 4/2019

Macroprudential Ring-Fencing

by Tomáš Konečný and Lukáš Pfeifer 

The paper anchors macroprudential policies into a wider discussion on the mechanism and implications of ring-fencing in the EU over time. Observed phase-in patterns of structural capital buffers in the EU are broadly consistent with credit risk materialisation and the share of foreign-owned banks' assets as potential factors. Further, the paper provides a discussion of potential implications of the recent adoption of the CRRII/CRDV legislation for future heterogeneity of macroprudential policies in the EU.

Read more
All Research Publications

Hot Topics at Home and Abroad

Global Economic Outlook

June 2020 – CNB GEO

Annual Assessment of the Forecasts Included in GEO

by Filip Novotný

The article assesses last year's forecasts by individual institutions for individual variables. In general, the shorter the forecast horizon, the more accurate the forecasts become. Forecasts for both GDP growth and inflation were too optimistic. Moreover, inflation forecast errors were more pronounced compared to GDP ones

Read more
May 2020 – CNB GEO

The Fiscal Policy Reaction to COVID-19, or the Fast Way out of the Crisis

by Petr Polák, Luboš Komárek, Iveta Polášková and Pavla Netušilová

The article provides an overview of the approaches of selected countries to supporting their economies and contains an analysis of the reasons for the fiscal stimuli and an assessment of the effectiveness of the current measures. It also warns that high debt may cause a long-lasting problem. 

Read more
April 2020 – CNB GEO

Impacts of the COVID-19 Pandemic on the World Economy 

by Martin Motl 

The article contains a detailed global econometric model-based quantification of the impacts of the COVID-19 pandemic on the economies of China, the US and the euro area, offering a unique view for a better understanding of transmission of the complex mix of supply and demand shocks.

Read more
All Issues of Global Economic Outlook

Thematic Articles on Financial Stability

June 2020 – CNB FS 2/2020

Vulnerable growth: Bayesian GDP-at-Risk 

by Milan Szabo, Zlatuše Komárková, Martin Časta 

This thematic article presents a new approach used by the CNB for quantifying the vulnerable real GDP growth risk. This approach uses Bayesian quantile regression to estimate the distribution of future real GDP growth conditional on the vulnerability of the financial system. Quantifying vulnerable real GDP growth risk gives the CNB an additional financial stability indicator revealing the degree of vulnerability of the Czech financial system.

Read more
All Thematic Articles on Financial Stability

Central Bank Monitoring

June 2020 – Central Bank Monitoring

Central Banks' Monetary Policy in Response to the Coronavirus Epidemic 

by Lucie Matějková 

The article offers a comprehensive overview of the extraordinary measures adopted to support economies across selected central banks in response to the coronavirus epidemic.

Read more
All Issues of Central Bank Monitoring

 Balance of Payments Reports

June 2020 – Balance of Payments Report 2019

The Balance of Payments and Its Importance for a Central Bank 

by Luboš Komárek 

The article presents in a simplified form the sophisticated structure of the balance of payments, emphasising its close relationship with a central bank's macroeconomic policy. Furthermore, it points out the links between the evolution of the balance of payments and its sibling statement of the international investment position, as well as its relationship with a country's external debt, including public budget performance.

Read more
June 2020 – Balance of Payments Report 2019

Cyclically Adjusted Current Account

by Oxana Babecká Kucharčuková and Jan Brůha 

The article proposes an approach based on an economic model decomposing the items of the current account into long-term trends, cyclical factors and one-off volatility. This allows the current account to be adjusted for one-off and cyclical factors. The presented econometric model can also be used to prepare economic scenarios and predictions of current account items.

Read more
June 2020 – Balance of Payments Report 2019

International Trade and Long-Term Economic Growth

by Volha Audzei, Jan Brůha and Ivan Sutóris 

Given the positive link between international trade and long-term economic growth, the current coronavirus pandemic threatens a negative effect on long-term economic performance.  Based on the literature, the article estimates that if international trade was reduced in the long term, each 10 per cent of the decrease would result in a decline in the long-term economic growth rate of 0.1-0.2 percentage point a year in advanced economies.

Read more
All Issues of Balance of Payments Reports
— Top Articles from the cnBlog

Death to the Cobb-Douglas Production Function?

by D. Ehrenbergerová, S. Gechert, T. Havránek and Z. Iršová
(30 April 2020)

The elasticity of substitution between capital and labor is a key parameter in economics. In this blog article, we show that its value is much lower than assumed by the frequently used Cobb-Douglas specification.
— Upcoming Events

21–23 September 2020
Conference on Expectations in Dynamic Macroeconomic Models


1–2 October 2020
4rd Annual Workshop of the ESCB Research Cluster 3 on Financial Stability, Macroprudential Regulation and Microprudential Supervision

November/December 2020
The CNB’s 16th Research Open Day

Note: moved from 25 May 2020 due to the coronavirus situation
Czech National Bank, Na Příkopě 28, 115 03 Praha 1,
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