Asset prices and financial imbalances in CEE countries: macroeconomic risks and monetary strategy
AbstractModern central banks have adopted a ‘risk management’ approach in assessing and presenting risks to macroeconomic stability. This paper seeks to contribute to the improvement of central banks’ current strategies for Central and Eastern European countries, first by assessing the potential size of macroeconomic risks, and secondly by empirically relating these risks to certain selected financial variables. Our results suggest that risks to GDP and the Price Level are significantly higher than commonly supposed based on a normal distribution of their cyclical components. However, relating these risks to the selected financial variables generated mixed results and is rarely significant in economic terms. We conclude that central banks currently risk underestimating the probability of large deviations in GDP and Price Level from their trends. A combination of financial variables and the inclusion of international financial variables could result in more significant results than the ones used separately in this study, when looking for useful indicators of such events.
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Bibliographic InfoPaper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2011/8.
Length: 38 pages
Date of creation: 2011
Date of revision:
central bank policy; financial imbalances; GDP-at-risk; CPI-at-risk;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-09 (All new papers)
- NEP-CBA-2011-10-09 (Central Banking)
- NEP-EEC-2011-10-09 (European Economics)
- NEP-MAC-2011-10-09 (Macroeconomics)
- NEP-TRA-2011-10-09 (Transition Economics)
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