Czech Republic, Europe, Financial sector, inflation, monetary policy, Poland, policy simulations, CASE Reports, Structural VAR, CASE Network Studies and Analyses, transition

Monetary Policy in Transition: Structural Econometric Modelling and Policy Simulations


In this paper I estimate a Bayesian structural VAR models for the Czech Republic and Poland, allowing for changes in parameters between the two monetary policy arrangements. The four-variables structural VAR methodology adopted in the study is successful in identifying monetary policy shocks and their effects for the Czech and Polish economies. The time-varying model is capable of detecting a change in the policy reaction function consistent with introduction of the floating exchange rate system and switching to short-term interest rate as the main policy instrument. The results indicate the dominant role of exchange rate in the monetary transmission mechanism.