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Evaluating changes in the monetary transmission mechanism in the Czech Republic

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  • Michal Franta
  • Roman Horvath
  • Marek Rusnak

Abstract

We investigate the evolution of the monetary policy transmission mechanism in the Czech Republic over the course of the 1996–2010 time period through the use of a time-varying parameters Bayesian vector autoregression model with stochastic volatility. We evaluate whether the response of GDP and the price level to exchange rate or interest rate shocks has changed over time, focusing on the period of the recent financial crisis. Our results suggest that prices have become increasingly responsive to monetary policy shocks. However, in terms of credible intervals, the stability of the monetary policy transmission mechanism in the Czech Republic cannot be rejected. Furthermore, it is demonstrated that the exchange rate pass-through has largely remained stable over time. Copyright Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • Michal Franta & Roman Horvath & Marek Rusnak, 2014. "Evaluating changes in the monetary transmission mechanism in the Czech Republic," Empirical Economics, Springer, vol. 46(3), pages 827-842, May.
  • Handle: RePEc:spr:empeco:v:46:y:2014:i:3:p:827-842
    DOI: 10.1007/s00181-013-0699-0
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    More about this item

    Keywords

    Monetary policy transmission; Sign restrictions; Time-varying parameters; E52; E44;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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