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MNB Bulletin MNB Bulletin Special issue October 2013 MNB Bulletin Special issue October 2013 The aim of the Magyar Nemzeti Bank with this publication is to inform professionals and the wider public in an easy-to-understand form about basic processes taking place in the Hungarian economy and the effect of these developments on economic players and households. This publication is recommended to members of the business community, university lecturers and students, analysts and, last but not least, to the staff of other central banks and international institutions. The articles and studies appearing in this bulletin are published following the approval by the editorial board, the members of which are Gábor P. Kiss and Róbert Szegedi. The views expressed are those of the authors and do not necessarily reflect the offical view of the Magyar Nemzeti Bank. Authors of the articles in this publication: Dániel Baksa, Gergely Baksay, Tamás Balás, Péter Bauer, Tamás Berki, Katalin Bodnár, Iván Csaba, Mariann Endrész, Szilárd Erhart, Péter Fáykiss, Dániel Felcser, Mihály Hoffmann, Ágnes Horváth, Zsuzsanna Hosszú, Emese Hudák, Gergely Kicsák, Gábor P. Kiss, Norbert Kiss M., Regina Kiss, Tamás Kiss, Balázs Kóczián, Attila Korencsi, Péter Koroknai, Zsolt Kovalszky, Csaba Köber, Gyöngyi Körmendi, Balázs Krusper, Zsolt Kuti, Melinda Lakatos, Gergely Lakos, Kristóf Lehmann, Zsolt Lovas, Ádám Martonosi, Róbert Mátrai, György Molnár, Zoltán Molnár, Zoltán Monostori, Gábor Pellényi, György Pulai, Olivér Rácz, István Schindler, Gábor Dániel Soós, Lajos Szabó, Katalin Szilágyi, Anikó Szombati, Bálint Tamási, Judit Várhegyi, Balázs Világi This publication was approved by Márton Nagy, Dániel Palotai Published by: the Magyar Nemzeti Bank Publisher in charge: Eszter Hergár H-1850 Budapest, 8−9 Szabadság tér www.mnb.hu ISSN 1788-1528 (online) Contents Summary 5 Dániel Baksa, Dániel Felcser, Ágnes Horváth, Norbert Kiss M., Csaba Köber, Balázs Krusper, Gábor Dániel Soós and Katalin Szilágyi: Neutral interest rate in Hungary 7 Gergely Baksay, Tamás Berki, Iván Csaba, Emese Hudák, Tamás Kiss, Gergely Lakos, Zsolt Lovas and Gábor P. Kiss: Developments in public debt in Hungary between 1998 and 2012: trends, reasons and effects 14 Tamás Balás: Households: indebtedness and debt service ratio 23 Péter Bauer, Mariann Endrész, Regina Kiss, Zsolt Kovalszky, Ádám Martonosi, Olivér Rácz and István Schindler: Excessive household debt: causes, trends and consequences 28 Katalin Bodnár, György Molnár, Gábor Pellényi, Lajos Szabó and Judit Várhegyi: Dynamics of the trade balance and developments in exports and imports 37 Szilárd Erhart, Gergely Kicsák, Zsolt Kuti, Zoltán Molnár and Zoltán Monostori: Doing it differently or The impact of the financial crisis on central bank balance sheets in emerging economies 46 Péter Fáykiss and Anikó Szombati: Macroprudential supervision in non-euro area European countries 61 Mihály Hoffmann, Balázs Kóczián and Péter Koroknai: Developments in the external balance of the Hungarian economy: indebtedness and adjustment 69 Zsuzsanna Hosszú, Gyöngyi Körmendi, Bálint Tamási and Balázs Világi: Impact of the credit supply on the Hungarian economy 81 Attila Korencsi, Melinda Lakatos and György Pulai: Regulation on the prohibition on monetary financing − obligations and opportunities 91 MNB BULLETIN • SPECIAL ISSUE • OCTOBER 2013 3 MAGYAR NEMZETI BANK Kristóf Lehmann, Róbert Mátrai and György Pulai: Measures taken by the Federal Reserve System and the European Central Bank during the crisis 98 Publications of the Magyar Nemzeti Bank 108 4 MNB BULLETIN • SPECIAL ISSUE • OCTOBER 2013 Summary DEAR READER, Building on employees’ valuable knowledge and experience, and ‘Regulation on the prohibition on monetary financing in March 2013 the Magyar Nemzeti Bank’s management − obligations and opportunities’, an article by Attila announced a two-round competition for Bank staff. Korencsi, Melinda Lakatos and György Pulai. Employees were asked to submit their papers written on current issues in the economy and central banking. The following articles discuss developments in government debt, trade balance dynamics and the external balance of The employee competition proved to be a great success: a the Hungarian economy: ‘Developments in public debt in total of 43 papers were submitted in two rounds, the vast Hungary between 1998 and 2012: trends, reasons and majority of which were written in groups by 103 employees effects’, by Gergely Baksay, Tamás Berki, Iván Csaba, Emese from staff. 4 papers, prepared by 25 employees, won a gold Hudák, Tamás Kiss, Gergely Lakos, Zsolt Lovas and Gábor P. degree. 27 papers won a silver degree, with contributions Kiss; ‘Dynamics of the trade balance and developments in from no less than 91 employees. The jury awarded a bronze exports and imports’, by Katalin Bodnár, György Molnár, degree to 12 papers − the work of 24 employees. Gábor Pellényi, Lajos Szabó and Judit Várhegyi; and ‘Developments in the external balance of the Hungarian This publication is a special issue of the MNB Bulletin, in economy: indebtedness and adjustment’, by Mihály which a collection of the entries for the competition is Hoffmann, Balázs Kóczián and Péter Koroknai. made available for the public. The Magyar Nemzeti Bank attaches great importance to making central bank analyses The banking sector and household indebtedness are dealt on various current economic and financial trends of general with by ‘Households: indebtedness and debt service ratio’, interest available to the wider public. Several papers will written by Tamás Balás; ‘Excessive household debt: be found in the Bank’s other publications, thereby reducing causes, trends and consequences’, written by Péter Bauer, the number of articles to be published in the Bulletin. Marianna Endrész, Regina Kiss, Zsolt Kovalszky, Ádám Accordingly, 11 of the entries have been chosen, which are Martonosi, Olivér Rácz and István Schindler; and ‘Impact being published by the Bank in the special issue of the of the credit supply on the Hungarian economy’, written Bulletin. by Zsuzsanna Hosszú, Gyöngyi Körmendi, Bálint Tamási and Balázs Világi. Consistent with the objectives of the invitation to participate in the competition, the papers encompass a wide spectrum In addition to these major topics, the article ‘Neutral of issues. Consequently, the articles in this issue cover a interest rate in Hungary’, written by Dániel Baksa, Dániel diverse range of topics. Felcser, Ágnes Horváth, Norbert Kiss M., Csaba Köber, Balázs Krusper, Gábor Dániel Soós and Katalin Szilágyi, also Part of them analyse current issues in central banking and discusses a topical issue. supervision. These include: ‘Doing it differently or The impact of the financial crisis on central bank balance sheets The above issues, together with other pieces of work, in emerging economies’, an article by Szilárd Erhart, have and will constitute an important part of work within Gergely Kicsák, Zsolt Kuti, Zoltán Molnár and Zoltán the Bank. Accordingly, the MNB Bulletin articles, as in the Monostori; ‘Macroprudential supervision in non-euro area past, will aim to provide the wider public with information European countries’, a material by Péter Fáykiss and Anikó on professional work done within the Magyar Nemzeti Szombati; ‘Measures taken by the Federal Reserve System Bank. and the European Central Bank during the crisis’, a piece of work by Kristóf Lehmann, Róbert Mátrai and György Pulai; The Editorial Board MNB BULLETIN • SPECIAL ISSUE • OCTOBER 2013 5 Dániel Baksa, Dániel Felcser, Ágnes Horváth, Norbert Kiss M., Csaba Köber, Balázs Krusper, Gábor Dániel Soós and Katalin Szilágyi: Neutral interest rate in Hungary Central banks primarily achieve their inflation targets by changing their key instrument, the central bank base rate, to the required extent and with careful timing. If the inflation outlook deteriorates and the forward-looking inflation rate exceeds the target, monetary policy raises interest rates to cool the economy and reduce inflation. In the opposite scenario, the bank cuts interest rates to stimulate the economy and raise inflation. In order to decide whether the prevailing rate of interest stimulates or slows the economy, it is necessary to know where the interest rate threshold is for expansionary versus contractionary monetary policy. We call this point of reference the neutral interest rate or the natural rate of interest. Similar to potential output, the neutral interest rate is a theoretical equilibrium concept, not an observable variable. It is therefore difficult to grasp empirically and its point estimation is surrounded with a great degree of uncertainty. This essay looks at the individual factors influencing the neutral interest rate and gives an estimate for the range in which it may move in Hungary. WHAT IS THE NEUTRAL INTEREST Chart 1 RATE? The monetary policy stance Real interest rate The neutral interest rate is the focal point for medium-term monetary policy. A rate of interest reaches its neutral level if (1) the economy develops in accordance with demand and Tight monetary policy supply capacities (the output gap is closed), (2) there is no medium-term inflationary pressure, forward-looking inflation is on target, and (3) the risk premium is also in line with the medium-term target. In such a situation, monetary policy need not change the base rate for any reason, be it inflationary considerations, the real economy or stability.1 Neutral real interest rate Just as the nominal interest rate equals the sum of the real Current real
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