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The effects of monetary policy in the Czech Republic: an empirical study

Listed author(s):
  • Magdalena Borys

    ()

  • Roman Horváth

    ()

  • Michal Franta

    ()

In this paper, we examine the effects of Czech monetary policy on the economy within the VAR, structural VAR, and factor-augmented VAR frameworks. We document a wellfunctioning transmission mechanism similar to the euro area countries, especially in terms of persistence of monetary policy shocks. Subject to various sensitivity tests, we find that a contractionary monetary policy shock has a negative effect on the degree of economic activity and the price level, both with a peak response after one year or so.Regarding prices at the sectoral level, tradables adjust faster than non-tradables, which is in line with microeconomic evidence on price stickiness. There is no price puzzle, as our data come from a single monetary policy regime. There is a rationale in using the realtime output gap instead of current GDP growth, as using the former results in much more precise estimates. The results indicate a rather persistent appreciation of the domestic currency after a monetary tightening, with a gradual depreciation afterwards.

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File URL: http://hdl.handle.net/10.1007/s10663-009-9102-y
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Article provided by Springer & Austrian Institute for Economic Research & Austrian Economic Association in its journal Empirica.

Volume (Year): 36 (2009)
Issue (Month): 4 (November)
Pages: 419-443

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Handle: RePEc:kap:empiri:v:36:y:2009:i:4:p:419-443
DOI: 10.1007/s10663-009-9102-y
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