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The New Keynesian Dsge Model and Alternative Monetary Policy Rules in the Czech Republic

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  • Milan Bouda

Abstract

The paper deals with a comparison of alternative monetary policy rules also known as Taylor rules. First, a New Keynesian DSGE model is specified. Results of this model are used as a benchmark. These results are obtained using Bayesian techniques. Bayesian techniques are used for both the estimation and the subsequent model comparison. The main experiment introduces three modifications to monetary policy rules. One specifies simple, Svensson and forward-looking monetary policy rules. The estimation is performed on Czech data and the period is from 2000Q1 to 2012Q3. Each specification of the New Keynesian model contains the same observed variables, GDP growth and inflation. The estimation of the benchmark model contains an interesting output as a shock decomposition of both the observed variables. The main finding of this paper is that the parameter estimates of all the modifications of monetary policy rules are almost the same and the log data density looks very similar for all the specified models. On the other hand, a completely opposite conclusion may be derived from the results of the Bayesian comparison of the DSGE models. The key output is that a forward-looking monetary policy rule significantly improves the ability of the New Keynesian DSGE model to fit the observed data.

Suggested Citation

  • Milan Bouda, 2014. "The New Keynesian Dsge Model and Alternative Monetary Policy Rules in the Czech Republic," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2014(1), pages 41-55.
    • Handle: RePEc:prg:jnlaop:v:2014:y:2014:i:1:id:425:p:41-55
    DOI: 10.18267/j.aop.425
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    References listed on IDEAS

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    1. Gali, Jordi & Gertler, Mark & David Lopez-Salido, J., 2003. "Erratum to "European inflation dynamics": [European Economic Review 45 (2001), 1237-1270]," European Economic Review, Elsevier, vol. 47(4), pages 759-760, August.
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    7. Gali, Jordi & Gertler, Mark & Lopez-Salido, J. David, 2001. "European inflation dynamics," European Economic Review, Elsevier, vol. 45(7), pages 1237-1270.
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    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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