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

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  • Roman Horváth

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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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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp848.pdf
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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp848.

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Length: pages
Date of creation: 01 Oct 2006
Date of revision:
Handle: RePEc:wdi:papers:2006-848

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Keywords: equilibrium interest rates; Taylor rule; augmented Kalman filter;

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References

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Cited by:
  1. Yüksel, Ebru & Metin-Ozcan, Kivilcim & Hatipoglu, Ozan, 2013. "A survey on time-varying parameter Taylor rule: A model modified with interest rate pass-through," Economic Systems, Elsevier, vol. 37(1), pages 122-134.
  2. Ansgar Belke & Jens Klose, 2009. "Does the ECB Rely on a Taylor Rule? - Comparing Ex-post with Real Time Data," Ruhr Economic Papers 0133, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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