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MPM - The Magyar Nemzeti Bank's Monetary Policy Model

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Executive Summary

March 2011 marked the introduction of the MNB's Monetary Policy Model (MPM), representing a paradigm shift in both inflation forecasting and monetary policy decision support. In contrast to the previous conditional projections, the MPM offers an endogenous definition for both the policy rate and the exchange rate. Given the forward-looking nature of this model, expectations by economic agents play a key role in monetary transmission; therefore, instead of one-off interest rate measures, the achievement of inflation target is guaranteed by the entire interest rate path over the forecast horizon.

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