Estimation of the Czech Economy Monetary Policy Rule under Discretion

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Year of publication 2004
Type Article in Proceedings
Conference DATASTAT 2003 Proceedings
MU Faculty or unit

Faculty of Economics and Administration

Field Economy
Keywords monetary policy; discretion; forward-looking model; adaptive expectations; inflation targeting; Iterative Extended Kalman Filter Smoother
Description This paper shows the optimal monetary policy rule problem in theoretical frameworks based on the work of R. Clarida, J. Gali and M. Gertler (1999). The policy design problem is to characterize how should the interest rate adjust to the current state of the economy. Optimal monetary policy rule is derived. Inflation targeting is incorporated then. The behaviour of the models is illustrated on the Czech economy data. Model parameters are estimated simultaneously by the "Iterative Extended Kalman Filter Smoother". Impulse responses are tested and results are economically interpreted.
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