Study on the Impact of CNB’s Foreign Exchange Interventions on the Labor Market in the Czech Republic

Despite a robust system of unemployment benefits, the Czech Republic’s unemployment rate remains significantly lower than the EU average. The influence of short-term foreign exchange intervention on the Czech labour market in 2013 and 2014 is examined in this paper. We look at the Czech Republic as a small open economy with its own currency, where exchange rate intervention is a useful instrument for monetary policy in times of extreme monetary looseness. In times of predicted inflation, when standard monetary policy instruments are unavailable, we suggest that foreign currency interventions can effectively enhance labour market indicators. On chosen parts of the Czech labour market, we show the diverse implications of the initial foreign exchange intervention. The number of job vacancies grew as a result of the foreign exchange intervention, according to our data. However, the increasing demand for labour was clearly not met by the supply, and the unemployment rate was significantly below the NAIRU limit, despite severe rigidities. In fact, we’ve seen that CNB actions have a negative impact on the number of employees and have accelerated wage rise. The impact of foreign exchange interventions on the labour market in the Czech Republic was similar to that seen in other economies, but the intensity was significantly different.

Author(S) Details

Klára Cermáková
University of Economics in Prague, Faculty of Economics, Department of Economics, Czech Republic.

Emilie Jasová
Charles University, Faculty of Social Sciences, Smetanovo nábrezi 6, Prague 1, 110 01, Czech Republic.

Bozena Kaderábková
Cech Technical University in Prague, Faculty of Civil Engineering, Czech Republic.

Michal Mirvald
University of Economics in Prague, Faculty of Economics, Department of Economics, Czech Republic.

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