COMPARISON OF THE APPROACH OF THE CZECH NATIONAL BANK AND THE EUROPEAN CENTRAL BANK TO THE EFFECTS OF THE GLOBAL FINANCIAL CRISIS

Abstract

The latest global crisis, which fully erupted in 2008, can have a significant impact on central bank credibility in the long run. During the crisis, monetary authorities encountered zero interest rate levels and, as a result, began to use non-standard monetary policy instruments. The Czech National Bank decided to use a less standard instrument in November 2013, when it started to intervene in the foreign exchange market in order to keep the Czech currency at the level of 27 CZK/EUR. However, the European Central Bank also adopted a non-standard instrument when it chose a path of quantitative easing in 2015 in order to support the euro area economy by purchasing financial assets. The question remains whether the approach of the Czech National Bank or that of the European Central Bank during the crisis and post-crisis period was more appropriate. With the passage of time since the global financial crisis, it is now possible to compare the approaches of these two central banks and at least partially assess which approach was more suitable under the given conditions. When comparing the central banks’ approaches to the crisis, the Czech National Bank performed better, both in terms of the pace of interest rate cuts and the resulting inflation, with regard to the choice of a non-standard monetary policy instrument. The recent financial crisis has revealed the application of moral hazard in practice, both on the part of the European Central Bank and the Czech National Bank, which may have a significant impact on their credibility and independence in the coming years.

Data:
Received: 8 Sep 2021
Revised: 3 Nov 2021
Accepted: 6 Dec 2021
Published: 20 Dec 2021