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The Reaction Function of Three Central Banks of Visegrad Group

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  • Josef Arlt
  • Martin Mandel

Abstract

The aim of our paper is to formulate and empirically verify the simple backward looking econometric model of the monetary policy rule, which would be able to describe the development of monetary policy rate, namely only on the basis of statistically measured and at the given time available information. We focus on the Czech National Bank, the National Bank of Poland and the Magyar Nemzeti Bank in the period of January 1999 to April 2012. In the present paper we discuss some methodological problems associated with the ex-post empirical verifi cation of the central bank’s monetary policy rule. We construct an empirical model of the monetary policy rule, justify the choice and the inclusion of explanatory variables, analyse the statistical properties of time series, and verify the alternative forms of econometric models. Our analysis showed that the development of monetary policy rate in the reporting period can be explained by the past and present development of four explanatory variables: yearly infl ation rate, exchange rate, ECB main refi nancing rate and growth rate of M2. The annualized infl ation rate proved to be statistically insignifi cant in the model. We fi nd interesting that the statistical quality of the estimated model was further increased after a six-month lag of the annual infl ation rate added to the model.

Suggested Citation

  • Josef Arlt & Martin Mandel, 2014. "The Reaction Function of Three Central Banks of Visegrad Group," Prague Economic Papers, University of Economics, Prague, vol. 2014(3), pages 269-289.
  • Handle: RePEc:prg:jnlpep:v:2014:y:2014:i:3:id:484:p:269-289
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    References listed on IDEAS

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    1. Vašíček, Bořek, 2012. "Is monetary policy in the new EU member states asymmetric?," Economic Systems, Elsevier, vol. 36(2), pages 235-263.
    2. Josef Arlt & Milan Bašta, 2008. "Časové řady měsíční a roční míry inflace a jejich vlastnosti
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      ," Politická ekonomie, University of Economics, Prague, vol. 2008(4), pages 536-556.
    3. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
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    15. Josef Arlt & Martin Mandel, 2012. "Je možné předpovídat repo sazbu ČNB na základě zpět hledícího měnového pravidla?
      [Is it Possible to Predict the CNB Repo Rate on the Basis of the Backward-Looking Monetary Rule?]
      ," Politická ekonomie, University of Economics, Prague, vol. 2012(4), pages 484-504.
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    Citations

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    Cited by:

    1. Aleksandra Halka, 2016. "How the central bank’s reaction function in small open economies evolved during the crisis," Bank i Kredyt, Narodowy Bank Polski, vol. 47(4), pages 301-318.
    2. Karel Janda & Van Quang Tran & Pavel Zetek, 2015. "Faktory ovlivňující zapojení žen v mikrofinancích
      [The Factors Influencing the Participation of Women in Microfinance]
      ," Politická ekonomie, University of Economics, Prague, vol. 2015(3), pages 363-381.
    3. Aleksandra Halka, 2015. "Lessons from the crisis.Did central banks do their homework?," NBP Working Papers 224, Narodowy Bank Polski, Economic Research Department.

    More about this item

    Keywords

    Visegrad Group; repo rate; monetary policy rules; econometric model; cointegration; annual infl ation rate;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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