Monetary Policy with Commitment: Case of the Czech National Bank
| Authors | |
|---|---|
| Year of publication | 2008 |
| Type | Article in Proceedings |
| Conference | Mathematical Methods in Economics 2008 |
| MU Faculty or unit | |
| Citation | |
| Field | Economy |
| Keywords | central bank's preferences;monetary policy;optimal commitment policy;small open economy;New Keynesian;DSGE;Bayesian estimation |
| Description | This article estimates a New Keynesian small open economy model of the Czech economy. The model incorporates household's habit formation in consumption and monopolistic competition with staggered prices in sector of domestic producers and importers. The central bank is treated as another optimizing agent in this article. This approach enables us to estimate the weights (representing preferences) that the Czech National Bank puts on inflation targeting, output stabilization and nominal interest rate smoothing. The estimates of the weights in central bank's loss function indicate that the Czech National Bank pays only a little attention to output stabilization in comparison to inflation targeting. This is in accordance with proclaimed policy of the Czech National Bank. Next, the estimated weight of the interest rate smoothing is quite substantial which reflects the carefulness of the Czech National Bank in setting nominal interest rates in recent years. |
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