, 36:419 | Cite as

The effects of monetary policy in the Czech Republic: an empirical study

  • Magdalena Morgese Borys
  • Roman HorváthEmail author
  • Michal Franta
Original Paper


In this paper, we examine the effects of Czech monetary policy on the economy within the vector auto regression (VAR), structural VAR, Bayesian VAR with sign restrictions, and factor-augmented VAR, frameworks. We 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, we find that a contractionary monetary policy shock has a negative effect on the degree of economic activity and the price level, both with a peak response after one year or so. Regarding prices at the sectoral level, tradables adjust faster than non-tradables, which is in line with microeconomic evidence on price stickiness. There is no price puzzle, as our data come from a single monetary policy regime. There is a rationale in using the real-time output gap instead of current GDP growth, as using the former results in much more precise estimates. The results indicate a rather persistent appreciation of the domestic currency after a monetary tightening, with a gradual depreciation afterwards.


Monetary policy transmission VAR Real-time data Sectoral prices 

JEL codes

E52 E58 E31 



We thank Oxana Babetskaia-Kukharchuk, Sophocles Brissimis, Martin Cincibuch, Paolo Giordani, Jan Hanousek, Jaromír Hurník, Marek Jarocinski, Michal Kejak, Evžen Kočenda, Francesco Lippi, Benoit Mojon, Michal Skořepa, Wadim Strielkowski, Petr Zemčík, and seminar participants at the Austrian National Bank, the Czech National Bank, Charles University, and the International Trade and Finance Association Annual Conference for helpful comments and discussions. All remaining errors are entirely our own. The views expressed in this paper are not necessarily those of the Czech National Bank. This paper was supported by Czech National Bank Research Project No. A3/07.


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Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  • Magdalena Morgese Borys
    • 1
  • Roman Horváth
    • 2
    Email author
  • Michal Franta
    • 1
  1. 1.CERGE-EICharles UniversityPraha 1Czech Republic
  2. 2.Czech National Bank and IESCharles UniversityPrague 1Czech Republic

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