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Monetary Policy Implications of Financial Frictions in the Czech Republic

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Abstract

Having witnessed the consequences of the financial crisis for the real economy, we find it desirable to look back and analyze the Czech economy ex post. We work with a Swedish New Keynesian model of a small open economy which embeds financial frictions in light of the financial accelerator literature. Without explicitly modeling the banking sector, this model serves as a tool for understanding how a negative financial shock may spread to the real economy and how monetary policy may react. We use Bayesian techniques to estimate the model parameters to adjust the model structure closer to the evidence stemming from Czech data. Our attention focuses on a set of experiments in which we generate ex post forecasts of the economy prior to the 2009 crisis and illustrate that the monetary policy response to an upcoming crisis implied by the model with financial frictions is stronger on account of an increasing interest rate spread.

Suggested Citation

  • Jakub Rysanek & Jaromir Tonner & Stanislav Tvrz & Osvald Vasicek, 2012. "Monetary Policy Implications of Financial Frictions in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(5), pages 413-429, November.
    • Handle: RePEc:fau:fauart:v:62:y:2012:i:5:p:413-429
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    File URL: http://journal.fsv.cuni.cz/mag/article/show/id/1256
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    References listed on IDEAS

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    Cited by:

    1. Georgios Georgiadis & Martina Jancokova, 2017. "Financial Globalisation, Monetary Policy Spillovers and Macro-modelling: Tales from 1001 Shocks," GRU Working Paper Series GRU_2017_008, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    2. Oxana Babecka Kucharcukova & Alexis Derviz & Vaclav Hausenblas & Michal Hlavacek & Mark Joy & Narcisa Kadlcakova & Lubos Komarek & Zlatuse Komarkova & Tomas Konecny & Ivana Kubicova & Jitka Lesanovska, 2014. "Macroprudential Research: Selected Issues," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 12, number rb12/2 edited by Jan Babecky & Borek Vasicek, March.
    3. David Svacina, 2018. "Devaluation with Exchange rate Floor in a Small Open Economy," Working Papers IES 2018/06, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Feb 2018.
    4. Robert Ambrisko & Vitezslav Augusta & Jan Babecky & Michal Franta & Dana Hajkova & Petr Kral & Jan Libich & Pavla Netusilova & Milan Rikovsky & Jakub Rysanek & Pavel Soukup & Petr Stehlik & Vilem Vale, 2013. "Macroeconomic Effects of Fiscal Policy," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 11, number rb11/2 edited by Jan Babecky & Kamil Galuscak, March.
    5. Jan Žácek, 2019. "Financial Variables in a Policy Rule: Does It Bring Macroeconomic Benefits?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(2), pages 122-148, April.
    6. Stanislav Tvrz & Osvald Vasicek, 2016. "The Great Recession in the Non-EMU Visegrád Countries: A Nonlinear DSGE Model with Time-Varying Parameters," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(3), pages 207-235, June.
    7. Tomas Adam & Miroslav Plasil, 2014. "The Impact of Financial Variables on Czech Macroeconomic Developments: An Empirical Investigation," Working Papers 2014/11, Czech National Bank.
    8. Kamil Galuscak & Adam Gersl & Marcela Gronychova & Petr Hlavac & Petr Jakubik & Lubos Komarek & Zlatuse Komarkova & Tomas Konecny & Jakub Seidler, 2014. "Stress-Testing Analyses of the Czech Financial System," Occasional Publications - Edited Volumes, Czech National Bank, edition 1, volume 12, number rb12/1 edited by Jan Babecky & Roman Horvath, March.
    9. repec:prg:jnlpep:v:preprint:id:513:p:1-22 is not listed on IDEAS
    10. Jaromir Baxa & Michal Franta & Tomas Havranek & Roman Horvath & Miroslav Plasil & Marek Rusnak & Borek Vasicek, 2013. "Transmission of Monetary Policy," Occasional Publications - Edited Volumes, Czech National Bank, edition 1, volume 11, number rb11/1 edited by Jan Babecky & Roman Horvath, March.
    11. Jose Peydro Alcalde & Sona Benecka & Alexis Derviz & Adam Gersl & Tomas Holub & Roman Horvath & Petr Jakubik & Narcisa Liliana Kadlcakova & Dorota Kowalczyk & Ivana Kubicova & Steven Ongena & Jakub Ry, 2012. "Financial Stability and Monetary Policy," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 10, number rb10/2 edited by Jan Babecky & Roman Horvath, March.
    12. repec:prg:jnlpep:v:2015:y:2015:i:5:id:513:p:1-22 is not listed on IDEAS
    13. Vít Pošta & Zdeněk Pikhart, 2015. "Financial Risk and Real Variables: Evidence Based on a SVAR Analysis of the Czech Economy," Prague Economic Papers, University of Economics, Prague, vol. 2015(5), pages 516-537.

    More about this item

    Keywords

    Bayesian methods; financial frictions;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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