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Real-Time Time-Varying Equilibrium Interest Rates: Evidence on the Czech Republic

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  • Horvath, Roman

Abstract

This paper examines (real-time) equilibrium interest rates in the Czech Republic in 2001:1-2005:12 estimating various specifications of simple Taylor-type monetary policy rules. First, we estimate it using GMM. Second, we apply structural time-varying coefficient model with endogenous regressors to evaluate fluctuations of equilibrium interest rate over time. The results suggest that there is substantial interest rate smoothing and central bank primarily responds to inflation (forecast) developments. The estimated parameters seem to sustain the equilibrium determinacy. We find that the equilibrium interest rates gradually decreased over sample period to the levels comparable to those of in the euro area reflecting capital accumulation, smaller risk premium and successful disinflation in the Czech economy.

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  • Horvath, Roman, 2006. "Real-Time Time-Varying Equilibrium Interest Rates: Evidence on the Czech Republic," MPRA Paper 845, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:845
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    References listed on IDEAS

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    More about this item

    Keywords

    equilibrium interest rates; Taylor rule; augmented Kalman filter;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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