Lessons from the crisis.Did central banks do their homework?

Aleksandra Hałka

No 224, NBP Working Papers from Narodowy Bank Polski

Abstract: The outbreak of the global financial crisis triggered changes in thinking about the way monetary policy is conducted, in particular about the desired central banks’ reaction function. However, a change in thinking does not necessarily mean that central banks really implemented these modifications. Therefore, I investigate whether four selected European central banks in small open economies – ˇCesk´a N´arodn´ı Banka, Magyar Nemzeti Bank, Narodowy Bank Polski and Sveriges Riksbank, have adjusted their reaction function to the new paradigm of how monetary policy should be conducted. To address this problem I use a logit model to see first, how the relative importance of inflation and GDP forecasts in the process of setting interest rates evolved over time, second, how the forecast horizon which central banks take into consideration when setting the interest rate has changed, and finally whether they conduct more accommodative monetary policy. The outcomes indicate that all banks after the Lehman Brother’s collapse became more flexible in the way they conduct monetary policy. In order to maintain the stability of the whole economy they are ready to accept an extended period or greater deviations of inflation from the target, although each one in its own way – through extension of the forecasting horizon, the increase of the GDP’s importance, permanent shift of the monetary policy stance to more accommodative one or a mixture of these factors.

Keywords: product-level inflation; CEE economies; multi-level factor model. (search for similar items in EconPapers)
JEL-codes: C25 E52 E58 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://static.nbp.pl/publikacje/materialy-i-studia/224_en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:224

Access Statistics for this paper

More papers in NBP Working Papers from Narodowy Bank Polski Contact information at EDIRC.
Bibliographic data for series maintained by Jakub Growiec ().