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The Effects of Monetary Policy in the Czech Republic: An Empirical Study

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Author Info
Magdalena Morgese Borys
Roman Horvath

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Abstract

In this paper, we examine the effects of Czech monetary policy on the economy within VAR and the structural VAR framework. Subject to various sensitivity tests, we find that contractionary monetary policy shock has a negative effect on the degree of economic activity and price level, both with a peak response after one year or so. Regarding the prices at the sectoral level, tradables adjust faster than non-tradables, which is in line with microeconomic evidence on price persistence. There is a rationale in using the real-time output gap instead of current GDP growth as using the former results in much more precise estimates. There is no evidence for price puzzle within the system. The results indicate a rather persistent appreciation of domestic currency after monetary tightening with a gradual depreciation afterwards.

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp339.

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Date of creation: Sep 2007
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Handle: RePEc:cer:papers:wp339

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Keywords: Monetary policy transmission VAR real-time data sectoral prices.

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Stefan Gerlach & Frank Smets, 1995. "The monetary transmission mechanism: Evidence from the G-7 countries," BIS Working Papers 26, Bank for International Settlements. [Downloadable!]
    Other versions:
  2. Luca Dedola & Francesco Lippi, 2000. "The Monetary Transmission Mechanism: Evidence from the Industry Data of Five OECD Countries," Econometric Society World Congress 2000 Contributed Papers 1833, Econometric Society. [Downloadable!]
  3. Erceg, Christopher & Levin, Andrew, 2006. "Optimal monetary policy with durable consumption goods," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1341-1359, October. [Downloadable!] (restricted)
  4. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  5. Renee Fry & Adrian Pagan, 2005. "Some Issues In Using Vars For Macroeconometric Research," CAMA Working Papers 2005-19, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  6. Roman Horvath, 2007. "The Time-Varying Policy Neutral Rate in Real Time: A Predictor for Future Inflation?," Working Papers 2007/4, Czech National Bank, Research Department. [Downloadable!]
  7. Luis J. Álvarez & Ignacio Hernando, 2006. "Competition and price adjustment in the euro area," Banco de España Working Papers 0629, Banco de España. [Downloadable!]
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  9. Frank Smets & Gert Peersman, 2001. "The monetary transmission mechanism in the Euro area: more evidence from VAR analysis (MTN conference paper)," Working Paper Series 091, European Central Bank. [Downloadable!]
  10. Coricelli, Fabrizio & Horváth, Roman, 2006. "Price Setting Behaviour: Micro Evidence on Slovakia," CEPR Discussion Papers 5445, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. BOUAKEZ, Hafed & CARDIA Emanuela & RUGE-MURCIA, Francisco, 2005. "The Transmission of Monetary Policy in a Multi-Sector Economy," Cahiers de recherche 2005-16, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
  13. Giordani, Paolo, 2004. "An alternative explanation of the price puzzle," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1271-1296, September. [Downloadable!] (restricted)
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  14. Sophocles N. Brissimis & Nicholas S. Magginas, 2004. "Forward-Looking Information in VAR Models and the Price Puzzle," Working Papers 10, Bank of Greece. [Downloadable!]
    Other versions:
  15. Jean Boivin & Marc Giannoni & Ilian Mihov, 2007. "Sticky Prices and Monetary Policy: Evidence from Disaggregated U.S. Data," NBER Working Papers 12824, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Elbourne, Adam & de Haan, Jakob, 2006. "Financial structure and monetary policy transmission in transition countries," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 1-23, March. [Downloadable!] (restricted)
  17. Katerina Arnostova & Jaromir Hurnik, 2005. "The Monetary Transmission Mechanism in the Czech Republic (evidence from VAR analysis)," Working Papers 2005/04, Czech National Bank, Research Department. [Downloadable!]
  18. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier. [Downloadable!] (restricted)
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  19. Kamil Dybczak & Vladislav Flek & Dana Hajkova & Jaromir Hurnik, 2006. "Supply-Side Performance and Structure in the Czech Republic (1995-2005)," Working Papers 2006/4, Czech National Bank, Research Department. [Downloadable!]
  20. Jean Boivin & Marc Giannoni, 2002. "Assessing changes in the monetary transmission mechanism: a VAR approach," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 97-111. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Roman Horvath, 2007. "The Time-Varying Policy Neutral Rate in Real Time: A Predictor for Future Inflation?," Working Papers 2007/4, Czech National Bank, Research Department. [Downloadable!]
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