The Effects Of Monetary Policy In The Czech Republic: An Empirical Study

In this paper, the authors examine the effects of Czech monetary policy on the economy within VAR, structural VAR, and the Factor-Augmented VAR framework. They document a well-functioning transmission mechanism similar to the euro area countries, especially in terms of persistence of monetary policy shocks. Subject to various sensitivity tests, they find that contractionary monetary policy shock has a negative effect on the degree of economic activity and price level, both with a peak response after one year or so. Regarding the prices at the sectoral level, tradable adjust faster than non-tradable, which is in line with microeconomic evidence on price stickiness.