Monetary Policy Implications of Financial Frictions in the Czech Republic
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| Year of publication | 2011 |
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| Description | As the global economy seems to be recovering from 2009 financial crisis, we find it desirable to look back and analyze Czech economy ex post. We work with Swedish New Keynesian model of a small open economy which embeds financial frictions in light of financial accelerator literature. Without explicitly modeling the banking sector, this model serves as a tool to understand how a negative financial shock may spread into real economy and how monetary policy may react. We use Bayesian techniques to estimate model parameters to adjust the model structure closer to evidence stemming from Czech data. Our attention focuses on a set of experiments in which we generate ex post forecasts of the economy prior to 2009 crisis and illustrate that monetary policy response to upcoming crisis in case of the Czech Republic might have been even more aggressive in terms of policy rate cut. |
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