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Policy Briefs

Policy Briefs are concise analytical pieces that emerge from policy work of economists and researchers across different departments of the National Bank of Slovakia. These texts either frame policy thinking within the bank or summarize our expertise on a specific topic that we would like to share with experts in the area (10 to 15 minutes read).

The views expressed are those of the authors and do not necessarily reflect those of the NBS.

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No. 5

10. 5. 2023

Do hawks sit on stronger branches? Central banks´ equity and policy reactions

Marcel Barmeier, André Casalis

  • Abstract

    In the midst of the current debate about whether an operational loss impair the ability of a central bank to achieve its goals, we look at the potential result of cumulating such losses over time: the equity position of the institution. We find that a stronger overall financial position is well correlated with a more aggressive tackling of inflation phenomena in the economy. However, central banks that expect higher pressure on the financial position due to participation in asset purchases do not react less decisively to inflationary pressure. We look at determinants of financial strength and find that more independent central banks have higher equity ratios, which is not driven by differences in the stages of economic development.

No. 4

25. 4. 2023

Macroprudential policy in the high inflation environment: Sailing uncharted waters

Carsten Detken, Ján Klacso, Reiner Martin

  • Abstract

    A long period of low and stable inflation and highly accommodative monetary policy ended in 2021. Macroprudential policy (MPP) was increasingly used during this period to counter the gradual increase in systemic risks in the banking sector. However, the recent increase in inflation and the tightening of monetary policy significantly transformed the macrofinancial environment for MPP, raising new questions about how to conduct MPP in a high-inflation environment. Given the considerable uncertainties facing the materialisation of macrofinancial vulnerabilities and the macroeconomic outlook, there appears to be no general advice on how to use MPP at the current juncture. The key question to ask before deploying capital-based measures is about the current state and future outlook of banking sector resilience. Against that background, it appears to be too early to release MPP capital buffers, and in some countries, an increase in macroprudential space might even be advisable. The situation regarding borrower-based measures must be seen in a more nuanced manner, given that the mortgage and real estate cycle in European countries is clearly turning. There is, however, no prior cross-national situation demonstrating that loosening capital is the most appropriate course of action at this stage because while looser lending standards might smooth over any cyclical correction, they may also generate challenges to financial stability in the medium term. Overall, it appears clear that the focus of MPP at this stage should be on preserving the resilience of the financial system. In contrast, the need to ‘tame the cycle’ and to prevent dynamic shocks to the financial cycle has clearly receded.

No. 3

17. 4. 2023

House Prices under Pressure: The Effect of Rising Borrowing Costs and Inflation

Patrik Kupkovič, Martin Cesnak

  • Abstract

    This policy brief assesses how rising inflation and borrowing costs may impact the housing market in Slovakia. The results of our analysis, in combination with the expected future path of inflation and interest rates, strongly suggest a downward trend in house prices going forward. More specifically, this policy brief shows that rising mortgage interest rates, rising inflation, and increasing government bond yields, historically had a downward impact on real property prices in Slovakia. The tightening of bank credit conditions, expressed through rising mortgage lending rates, has a sizeable and immediate adverse effect on the housing market. Rising inflation reduces disposable income and slows the economy. This also reduces real house prices, although with a lag. Rising government bond yields due to monetary policy tightening, finally, have a long-lasting negative impact on the housing market and the economy.

No. 2

23. 1. 2023

When food bites back

André Casalis

  • Abstract

    Markups for firms operating in food and beverages manufacture and sales sectors have increased in the first half of 2022, suggesting a decoupling between the increase in current production costs and prices. The evolution of markups in the period between the first quarter of 2015 and the second quarter of 2022, a high-inflation environment, shows, on one hand, a very recent dynamic evolution of the price setting behaviour displayed by food-related businesses, and on the other the remarkable stability of markups observed at broad aggregate level in the largest sectors of the Slovak economy.

No. 1

31. 8. 2022

Direct impact of energy price increases on firm profitability and producer prices

Ján Klacso, Tibor Lalinský

  • Abstract

    Increasing energy prices represent one of the main drivers of the recent increase of HICP inflation to double-digit figures. In this Policy Brief we focus on the first-round effects of increased energy prices on Slovak firms. Our results based on firm level data suggest that increasing energy prices may have a significant direct impact on the profitability of many firms. Without adjusting their prices, the number of firms reporting losses could increase substantially as a result of energy price increases. Moreover, almost all firms with high energy costs would end up with a loss. Therefore, we assume firms transmit increased energy costs to producer prices. The direct effect may reach up to 8% in some sectors to compensate for higher input costs if energy prices double. As energy intensive industries are important suppliers to other domestic industries, we may also expect significant upward second-round effects on producer prices and ultimately increasing consumer prices.

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