Comparing monetary policy rules in CEE economies: A Bayesian approach

Petre Caraiani

Economic Modelling, 2013, vol. 32, issue C, 233-246

Abstract: Using the Bayesian approach, a small open economy DSGE model was estimated using a sample of quarterly data for three Central and Eastern Europe economies, Czech Republic, Hungary and Poland. The hypothesis that central banks react to exchange rate movements was tested using posterior odds ratio. For these economies, evidence was found that central banks reacted to exchange rate changes. Evidence of similar monetary policy characterized by moderate or low gradualism as well as an active and conservative monetary policy was also found, for the selected countries. When a richer DSGE model featuring habit formation and imperfect pass-through is estimated, the results are generally similar. The inclusion of exchange rate in Taylor rule can also drastically change the dynamics of inflation and output following certain shocks.

Keywords: New Keynesian models; Small open economy; Monetary policy; Taylor rules; Bayesian methods (search for similar items in EconPapers)
JEL-codes: C11 E32 E52 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:32:y:2013:i:c:p:233-246

DOI: 10.1016/j.econmod.2013.01.045

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