EFFECTIVENESS OF THE MONETARY POLICY IMPLEMENTATION IN THE CONTEXT OF CRISIS: USE OF SHORT-TERM INTEREST RATE IN THE CZECH REPUBLIC AND THE EMU
The recent economic crisis and the events that followed, namely the debt crisis, pointed to a number of issues of European Economic and monetary union (EMU), such as particularly persistent asymmetries and differences in development. Due to the high interconnectedness of member countries’ economies, it is no longer possible to perceive the problems of one country as isolated, since the negative effects are spread throughout the EMU.
Jméno a příjmení autora:
Ľudmila Bartóková, Júlia Ďurčová
Interest rate channel, monetary policy shock, EMU, Czech Republic, economic crisis, VAR model
DOI (& full text):
Focus on monetary policy transmission mechanism has regained its importance especially in regards to fi nancial and debt crisis. Negative developments after 2008 still verify the ability of monetary…více
Focus on monetary policy transmission mechanism has regained its importance especially in regards to fi nancial and debt crisis. Negative developments after 2008 still verify the ability of monetary policy to mitigate its impacts. In EMU, it can be seen in the case of the effects of single monetary policy and the deepening of the asymmetries between member countries. This can be compared to the case of the monetary policy effi ciency in small and open non-member country and its infl uence on macroeconomic developments.
This paper is focused on the analysis of transmission process of monetary policy through the interest rate channel in EMU as well as in a non-member country, namely in Czech Republic. The aim of the analysis was to verify the similarity of reaction in case of monetary policy shock. The results for Czech Republic were compared to results for overall EMU. The focus was predominantly on interest rate channel of monetary transmission process and its impact on infl ation, nominal effective exchange rate and gross domestic product, the variables that are typically used in central banks’ monetary rules. We also assumed that negative developments related to the crisis can distort the transmission of monetary policy effects on macroeconomic variables and that the impact of monetary policy changes is transmitted to the economic variables only partially or signifi cantly lagged. The effects of interest rate shocks on selected variables were identifi ed by estimating VAR model that uses Cholesky decomposition of innovations; the most widely used empirical methodology for analysing the transmission mechanism of monetary policy. The results show that the reactions of the product and the price level to positive interest rate shock are very similar for Czech Republic as well as for EMU throughout the investigated period 1999–2013. However, we cannot defi nitively affi rm that the crisis disrupted the transmission process from monetary measures to analysed macroeconomic variables as shown in the cases of Czech Republic and EMU. Interest rate channel has not shown particularly strong and stable infl uence on the observed variables neither for Czech Republic, nor for EMU.