Interventions of the Czech National Bank and their impact on a foreign trade of the Czech Republic

On November 2013, the Czech National Bank (CNB) began to intervene in the foreign exchange market with an objective to weaken the domestic currency. The depreciation of the exchange rate should not only prevent the potential threat of deflation, but also support the Czech economy. This paper examines the impact of the interventions on the foreign trade of the Czech Republic with the states of the European Union (EU28) as key trading partners. I proceed from the theory of the J-curve and the related Marshall-Lerner condition, according to which the weakening of the domestic currency will first lead to a decline in net exports and their subsequent growth over a long period. The crucial part of the thesis consists in the analysis of selected macroeconomic indicators. Based on the development of these indicators in the past ten years, starting in 2008, foreign exchange interventions have helped to improve many indicators over the long term, particularly the: inflation, GDP and employment growth. The development of exports and imports demonstrates some aspects that could indicate the verification of the J-curve concept, however, this can not be fully confirmed. It is important to note that foreign exchange interventions are only one of many factors influencing the development of the Czech economy. Consequently, it is unclear to what extent the interventions were a key factor.