Evaluating changes in the monetary transmission mechanism in the Czech Republic |
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Authors: | Michal Franta Roman Horvath Marek Rusnak |
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Affiliation: | 1. Czech National Bank, Na Prikope 28, 115 03, Prague 1, Czech Republic 2. Institute of Economic Studies, Charles University, Opletalova 26, 110 00, Prague 1, Czech Republic 3. Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Pod Vodarenskou vezi 4, 182 08, Prague 8, Czech Republic
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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. |
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