Transparency: Czech National Bank

New monetary policy report, and publication of attributed minutes and economic model raise the bar for disclosure
The Czech National Bank

The Czech National Bank took its already impressive commitments to transparency to a new level during the past year, after it started publishing its flagship Monetary policy report – the result of a four-year project to replace and repurpose its 23-year-old Inflation report.

The new, quarterly publication uses easy-to-understand language and focuses on issues related to the thought processes of members of the CNB’s Bank Board, the rate-setting body at the central bank, when they make monetary policy decisions. The launch of the report in 2021 builds on another bold effort to promote transparency at the central bank, when the CNB started to attribute comments about policy positions directly to individual members of the Bank Board as well as its decision to publish core details about its main forecasting model, G3+.

The CNB’s commitment to transparency – including a long-standing focus to communicate with the stakeholders in simple language via traditional and social media channels – also appeared to help it to maintain public trust when the central bank had to stand its ground against political interference during parliamentary elections late last year.

The Monetary policy report

Development of the CNB’s flagship Monetary policy report was initiated by the Monetary Department and supported by Communications and the Bank Board. The idea was to provide a detailed description of the economic issues the central bank’s board members considered important when making monetary policy decisions. It superseded the previous Inflation report, which tended to use formal language and whose first section was backward-looking.

A critical component of the new Monetary policy report was to include the disclosure of monetary policy deliberations, information that previously was only made available internally to board members. The deliberations are now incorporated into the main report, which is published a week after each monetary policy meeting.

Each publication focuses on the monetary policy decision taken, along with relevant data and forecasts that informed the policy choices. It includes a narrative about the board’s considerations and the arguments that entered the decision-making process. It also offers insights into expected monetary policy steps.

The report still contains updated forecasts of future economic developments, but places greater emphasis on topics related to the domestic and global economy that are key to the rationale behind monetary policy decisions. Ultimately, it aims to offer a deeper insight into the CNB’s macroeconomic forecast and monetary policy-making, while remaining easy to read and understand.

“We completely changed the structure and order of the facts and information that we offer to readers of the publication,” says Markéta Fišerová, director of the communications division in the general secretariat at the CNB. ““The primary focus is now on the storytelling – the justification of the monetary policy decision, and presentation and explanation of our forecast.”

Fišerová says there is still “a way to go” in the CNB’s efforts to use “plain language”, but the aim is to make the publications accessible “to basically everyone”.

Attributed minutes

The launch of the Monetary policy report followed a parallel development to publish ‘attributed minutes’ in February 2020. These minutes provide details of the individual policy arguments and ascribe them to respective board members. The aim is to inform the public about the thinking of Bank Board members and the reasons behind their votes. The CNB believes releasing these minutes has increased the predictability of the decision-making not just of the individual board members but also of the Bank Board as a whole. Concerns about possible ‘grandstanding’ or attribution potentially taking the debate outside of board discussions have proven unfounded, so far, says Fišerová.

“Financial markets analysts, economic journalists and other central bank watchers are better informed, and have a more profound understanding of the current monetary policy considerations of the individual board members,” she adds. “Now [board members] present their own opinions in public and to media not only between policy meetings, but also in the official institutional communications.”

Another important step towards greater transparency was the publication of a detailed description of the CNB’s core economic model, G3+. It was published in a working paper at the beginning of 2021 to recognise the need for reliable macroeconomic forecasts as a prerequisite for well-informed, forward-looking monetary policy decision-making.

“The advancements made to the CNB core projection model allow us to better capture recent domestic and global macroeconomic developments and stylised features, and to improve the accuracy and performance of our forecasting,” says Fišerová.

When it set up its monetary policy framework many years ago, the CNB received assistance from peers, such as Bank of Canada. It now, in turn, assists other central banks as they develop their own frameworks. The CNB hopes that by publishing its model, it may help the overall understanding of the CNB’s models by financial markets economists and promote advanced macroeconomic modelling.

CNB managers also demonstrated their commitment to transparency by volunteering to disclose their wages (in addition to individuals sitting on the Bank Board) when the Czech National Bank Law was amended in 2021 to provide legal status for the use of unconventional instruments. “Transparency is something that is incorporated in our everyday thinking and actions,” says Fišerová.

Public trust

This can be witnessed in the way the CNB has developed its social media channels, using them to explain and justify its decisions and actions. The CNB says it has the most followers on its revived LinkedIn account out of any public institution in the Czech Republic. It has supplemented its Twitter and Facebook offerings by setting up an Instagram profile and also started creating more video and audio content, available on YouTube and Spotify. It now communicates on most major media platforms with content tailored to specific target groups – communication on Facebook and Instagram tends to be more explanatory and educational in nature than on other sites.

Fišerová says the ability to communicate with a wide audience helps to explain the central bank’s policy decisions during challenging times, such as those occurring now, when inflation remains elevated – fuelled not only by rising energy prices and supply chain disruptions and a major government pandemic stimulus, but also domestic inflationary pressure related to labour constraints that preceded Covid-19.

This helped when the CNB faced political pressure ahead of the Czech parliamentary elections last year. Officials of the then-government publicly urged the CNB to refrain from raising rates, stating that inflation was an imported phenomenon. The CNB responded with substantive arguments explaining the differences between the situation in the Czech Republic and other countries. The CNB raised rates anyway and subsequent increases in prices indicate the CNB was correct to tighten when it did. “Public and financial market opinion has since changed and is now in favour of interest rate hikes,” says Fišerová

This was the first time that the political independence of a central bank and its importance were discussed to such an extent in the public domain. “We are convinced that the CNB stood the test, and defended both its commitment to its mandate, which is strictly defined as maintaining price stability, and its independence,” adds Fišerová.

The Central Banking Awards were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Victor Mendez-Barreira, Ben Margulies and Riley Steward

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