4. Forecasting monetary aggregates
4.3 Rolling liquidity programme
Rolling liquidity programme: forecast-ing outstandforecast-ing value of sterilisation instruments and the factors influencing them
The rolling liquidity programme is a survey of items that determine the changes in the value of sterilisation instruments on the central bank’s balance sheet. Whereas the forecast of the central bank bal-ance sheet refers to the outstanding stock on the last day of the indi-vidual quarters, the liquidity programme presents the monthly aver-age stocks and the impact of the individual factors on the monthly average outstanding stock of sterilisation instruments.
Table Q Changes in the central bank balance sheet (1998, 1999, 2000 H1)
HUF billions Variables 1998 1999 2000
H1 1 Net foreign currency assets Res L+ $JK–CD$–LFJ 164 59 –169 2 Net forint assets LJB+LJKFt –CDFt–KESZ 997 1,380 1,590 Monetary base (1+2=A+B+C+D) KP + RR 1,161 1,439 1,421 A Central government, net LJKFt L KESZ
+ JK$ – 2,754 1,924 1,757 B Banking sector, net LJB–CDFt–CD$ –660 –1,038 –961
C Non-residents, net Res–LFJ –507 504 737
D Other assets, net –427 48 –112
The correlations of changes in the outstanding stocks of sterili-sation instruments can be obtained mainly from the major items of the central bank balance sheet. Using the central bank balance sheet in Table P, we can now express the change in the value of outstand-ing sterilisation instruments. Accordoutstand-ingly, this change takes the fol-lowing form:
DCDFt =DRe –s DLFJ –DCD$ +DLJB – (DKESZ–DLJK) –DMB–DP The first three elements on the left-hand side of the equation are equal to the measure of foreign exchange market intervention, so using equation (9) we can now express the change in the sterilisation instrument in the following form:
D D D D
Thus, the change in the sterilisation instrument can be ex-pressed using not only the items of the central bank balance sheet, but also on the basis of certain flow variables, such as intervention and interest payments. According to the above expression, the out-standing stock of sterilisation instruments is increased by
– foreign exchange market intervention; and – the increase in outstanding refinancing loans;
While the outstanding stock of sterilisation instruments is de-creased by
– the increase in the monetary base;
– the increase in the balance on the Treasury Account, which, however, must be adjusted for items causing changes in the balance on the Treasury Account but leaving liquidity wholly unaffected (supply of foreign currency by general ment and profit transfer by the NBH to the central govern-ment); and
– the financial results of the central bank earned on forint trans-actions, which essentially is equal to interest remunerated on net forint liabilities to commercial banks.
Quantifying the im-pact on the monthly average stock of steri-lisation instruments
The importance of the rolling liquidity programme(see Appen-dix 4)lies in part in the fact that, within the methodological frame-work defined above, developments in the sterilisation instrument can be expressed using a few well-defined variables. What is more im-portant, however, is that, as reserve requirements apply on average over a month, the measure of the monetary base can be forecast for the average of one month and not for the last day of a month.
Therefore, it is useful to calculate the averages of the other factors of the rolling liquidity programme as well, and their effect on the
banking sector’s average liquidity. When taking into account the av-erages, the exact timing of the various events becomes an important factor – those factors which normally arise at the end of the month and affect interbank liquidity, such as a maturing NBH bills, for ex-ample, tend to have a significantly lower impact on theaverage li-quidity of the given period thandailyliquidity. As a consequence of averaging, when using equation (13) it is the flow values arising from the monthly average stocks that must be taken into account, rather than those calculated from changes in stocks. Owing to these fac-tors, the outputs of the rolling liquidity programme and the figures in the other tables of the monetary programme are not directly compa-rable.
The rolling liquidity programme is the only output table of the monetary programme which is regularly updated between two mon-etary programmes. The reasons for taking this approach are that de-velopments in the banking sector’s liquidity require constant moni-toring and that, due to the uncertainty of the short-term forecast of foreign exchange market intervention, the value of outstanding steri-lisation instruments may at times differ from the projected value. The rolling liquidity programme is updated weekly, based on the actual data on foreign exchange market intervention and the daily forecast of the Treasury Account balance.
Appendices
Appendix 1 Flow-of-funds matrix
Financial assets
House-holds
Corporate sector General government
Non-residents
2. Required reserves DRR –DRR
Monetary base = 1+2
3. Sight deposits DDRHFt DDRVFt –DDRFt DDRRFt
government paper DBH DBV DBR
b) NBH bills DCDVFt DCDRFt
M4 = 1+3+4+5+a+b c) Monetary government
paper + government paper held by
non-residents DBB DBF
6.Total government
securities issued = a+b+c DBH DBV DBB DBR –DB DBF
7. Claims on financial corporations other
credit institutions DMF –DMF
8. Shares and ownership
interests DEH –IV+DEV –IB DER –Pv=DEK DEF
9. Forint loans –LBH DLFtBV DLFt –DLBR 10. Foreign currency loans DL$BV DL$
11. Net foreign
14. Forint deposits – forint borrowing of central government
DKESZ
–DLJKFt DLJKFt– DKESZ 15. Net foreign currency
borrowings of central
government –DLJK$ DL$JK
Financing capacity (I+...+15) NFKH NFKV NFKG –CA–KA
Appendix 2 Flow-of-funds matrix based on 1999 values
HUF billions
House-holds
Corporate sector General government
residents
2 Required reserves 99 –99
Monetary base = 1+2 162 18 140 –319
3 Sight deposits 76 49 –133 8
M1 = 1+3 237 67 –92 8 –220
4 Time deposits 196 144 –340 7 –6
5 Foreign currency deposits –5 –5 9
M3 = 1+3+4+5 428 206 –423 7 3 –220
a) Government securities outside
the banking sector 167 67 369 –603
b) NBH bills –9 –59 –121 –66 –15 269
M4 = 1+3+4+5+a+b 587 214 –544 310 –616 49
c) Government securities held
by banks –109 85 24
d) Government securities held
by non-residents –152 152
6 Total government securities
issued=a+c+d 167 67 –109 369 –670 24 152
7 Claims on financial corporations
other than credit institutions 288 –288
8 Shares and ownership interests –124 –73 46 97 –185 240
9 Forint-denominated loans –116 –227 370 –27
10 Foreign currency loans –145 145
11 Net foreign borrowing –378 –130 –573 983 98
12 Sterilisation instruments –
refinancing loans 361 –361
13 Foreign currency deposits
of commercial banks –212 212
14 Forint deposits/borrowings
of central government 200 –200
15 Net foreign currency borrowings
of central government 626 –626
Financing capacity (1+...+15) 635 –608 26 92 –615 –18 490
Financing capacity (in % of GDP) 5.5 –5.3 0.2 0.8 –5.4 –0.2 4.3
Step 1:Forecasting financing capacities and external consistency
Step 2:Flow of funds: Forecasting transactions relating to individual assets and liabilities of changes in forint-denominated financial Fixing forecasts of financing
capacities
Rolling liquidity programme (changes in average monthly stocks)
Balance sheet of the central bank (quarterly data,
end-of-month stocks)
of the banking sector (quarterly data, end-of-month stocks)
Forecasting financing capacities
Step 3:Forecasting the monetary aggregates and balance sheets (calculating balance sheet aggregates based on transactions)
Appendix 3 Stages of constructing the monetary programme*
* Oblongs indicate inputs, ellipses work flows and prallelograms outputs.
Appendix 4 Rolling liquidity programme
HUF billions 1999
Jan. Feb. March April May June July Aug. Sep. Oct. Nov. Dec.
1 Changes in monetary
base –48.7 –8.8 20.0 14.8 29.8 20.5 27.7 13.0 7.0 25.2 7.9 98.3
2 Expected changes in the average balance
of Treasury Account 3.7 10.8 –19.0 15.9 9.2 11.4 46.2 –10.3 50.3 23.0 8.9 –22.4 3 Effect of changes in the
stock of NBH bills 27.2 42.9 85.9 33.4 44.4 21.0 49.0 15.3 16.3 0.0 0.0 0.0 4 Expected changes in the
settlement account
of ÁPV Rt –15.9 2.2 –0.9 –5.3 0.5 49.5 8.9 –6.9 –5.5 8.1 1.0 –10.0
5 Net effect of changes in O/N deposits, repos
and swaps –47.6 37.3 0.3 –3.6 –4.5 –3.2 1.1 20.8 –21.9 –1.8 10.8 36.2 6 Net effect of changes
in foreign currency from
the central government 0.0 0.0 0.0 0.0 0.0 35.9 27.5 0.0 0.0 0.0 0.0 0.0 7 Effect of changes
in refinancing loans –6.4 0.0 –8.2 –14.0 0.0 0.0 –2.5 0.0 –0.1 –2.4 0.0 –0.1 8 Changes in Treasury
Account balance due to transactions between central bank and government unaffecting
interbank liquidity* 44.3 31.2 56.4 41.4 11.6 11.4 22.1 28.2 9.5 42.8 11.4 11.7 9 Net interest payments to
commercial banks 5.7 7.1 7.6 8.8 6.7 6.9 7.2 8.1 9.7 9.5 8.6 9.6
10 Effect of intervention –10.5 –61.9 –5.7 0.0 –4.0 –36.3 –126.3 –148.9 –50.7 –0.5 –59.7 –106.8 11 Others 12.0 13.9 –6.3 –2.1 –2.0 7.5 17.8 3.1 8.4 –10.3 –42.6 –11.5 Changes in the monthly
average stock of sterilisa-tion instruments
(–1–2+3–4–5+6+7–8+9–10
+11) 89.2 25.3 40.5 –33.0 10.7 2.9 83.7 124.5 28.7 –79.4 71.0 14.2 Average stock of
sterilisa-tion instruments 215.2 240.5 281.0 248.0 258.7 261.7 345.4 469.9 498.6 419.2 490.2 504.4 Memos:
Expected stock of the
mone-tary base 1,160.81,152.01,172.01,186.81,216.61,237.11,264.81,277.91,284.91,310.11,318.01,416.3 Expected monthly average
stock of cash outside the
banking system 657.8 653.9 663.8 673.2 695.4 714.2 727.6 739.5 739.5 746.9 761.0 845.0 Expected stock of required
reserves 503.0 498.1 508.2 513.6 521.2 522.9 537.2 538.4 545.4 563.2 557.0 571.3 Expected monthly average
balance on Treasury
Account 53.3 64.1 45.0 60.9 70.1 81.5 127.7 117.3 167.7 190.7 199.6 177.1 Expected monthly average
balance on the settlement
account of ÁPV Rt 64.4 66.5 65.7 60.4 60.9 110.4 119.3 112.4 106.9 115.0 116.0 105.9 Expected monthly average
stock of NBH bills 262.4 226.1 153.6 125.4 87.4 69.3 27.1 14.0 0.0 0.0 0.0 0.0
* Profit transfers, repayments of debt, net interest payments by general government.
Appendix 5
Variables
When denoting the variables, we have attempted to maintain the ab-breviations for the English expressions; however, in the case of a few exceptions the Hungarian abbreviations have remained. We have introduced a couple of rules in order to assist in reading the variables, because a description of all variables would be several pages long. The rules are the following:
Subscript text denotes individual sectors, while superscript text denotes whether the asset in question is denominated in forint or for-eign currency. We indicate this latter separately only in cases when otherwise it would not be unambiguous. If there is no indication of such relating to a sector, then generally the whole stock is meant.
For example,KPHdenotes the measure of cash held by households, andKPdenotes the total value of banknotes and coin in circulation.
In the case of flows, certain variables have been required to indicate two sectors. For example,DLFJdenotes the change in central bank foreign borrowings, and DLBH denotes the change in outstanding lending by credit institutions to households.
For sectors which are broken down by sub-sector, the total value characteristic of the given sector can be calculated by aggre-gating the sub-sectors. For example,NFKTV, denoting total corporate sector financing capacity, is derived as the sum of the three sub-sectors’ financing capacities, i.e. NFKTV = NFKV+NFKB+NFKR. This principle is valid in general, not only for this indicator.
Abbreviations denoting the individual sectors:
Index Sector Relationships valid
in aggregations
H Households
V Non-financial corporations B Commercial banks
R Other-financial corporations
TV Entire corporate sector TV=V+B+R
J Central bank K Central government
G General government (Central government
+ Central bank) G=K+J
F Non-residents
P Private sector P=H+TV
Stock:
KP Cash
RR Commercial banks’ reserves held at central bank
CD Forint and foreign currency deposits with the central bank DR Sight deposits
DH Time deposits
D=DR+DH Forint and foreign currency deposits with commercial banks
L Outstanding credit. Subscript denoteswhich sector lends to which sector. For example, denotationLJK$ indicates lending by the central bank to the central gov-ernment.
B Holdings of government securities and Treasury bills E Shares and equity ownership
MF Other financial corporations’ holdings of investment fund certificates Res International reserves
C Shareholders’ equity
OP Commercial banks’ on-balance sheet open positions
Flows:
NFK Net financing capacity (or borrowing requirement) Int Measure of intervention
CA Current account balance KA Capital account balance FDI Foreign direct investment
Pv Privatisation revenue I New issues of shares