Bořek Vašíček

How Does Monetary Policy Change? Evidence On Inflation-Targeting Countries

We examine the evolution of monetary policy rules in a group of inflation targeting countries (Australia, Canada, New Zealand, Sweden and the United Kingdom), applying a moment-based estimator in a time-varying parameter model with endogenous regressors. Using this novel flexible framework, our main findings are threefold. First, monetary policy rules change gradually, pointing to the importance of applying a time-varying estimation framework. Second, the interest rate smoothing parameter is much lower than typically reported by previous time-invariant estimates of policy rules. External factors matter for all countries, although the importance of the exchange rate diminishes after the adoption of inflation targeting. Third, the response of interest rates to inflation is particularly strong during periods when central bankers want to break a record of high inflation, such as in the UK or Australia at the beginning of the 1980s. Contrary to common wisdom, the response becomes less aggressive after the adoption of inflation targeting, suggesting a positive anchoring effect of this regime on inflation expectations. This result is supported by our finding that inflation persistence as well as the policy neutral rate typically decreased after the adoption of inflation targeting.

Inflation Dynamics and the New Keynesian Phillips Curve in Four Central European Countries

This paper seeks to shed light on the inflation dynamics of four new central European EU members: the Czech Republic, Hungary, Poland, and Slovakia. To this end, the New Keynesian Phillips curve augmented for open economies is estimated and additional statistical tests applied, with the following results: (1) the claim of New Keynesians that the real marginal cost is the main inflation-forcing variable is fragile, (2) inflation seems to be driven by external factors, and (3) although inflation holds a forward-looking component, the backward-looking component is substantial. An intuitive explanation for higher inflation persistence may be adaptive, rather than rational price setting of local firms.

Inflation and the steeplechase between economic activity variables: evidence for G7 countries

Abstract A sharp increase in unemployment accompanied by a relatively muted response of inflation during the Great Recession and a consecutive inflationless recovery cast further doubts on the very existence of the Phillips curve as a systemic relation between real activity and inflation. With the aid of dynamic model averaging, this paper aims to highlight that this relation resurfaces if (i) inflationary pressures are captured by a richer set of real activity measures, and (ii) one accounts for the existence of a non-linear response of inflation to the driving variable. Based on data for the US and other G7 countries, our results show that the relation between economic activity and inflation is quite sturdy when one allows for more complex assessment of the former. We find that measures of economic activity describe inflation developments to a varying degree across time and space. This can blur the picture of inflation–real economy comovements in models where only a single variable of economic activity is considered. The output gap is often outperformed by unemployment-related variables. Our results also confirm a weakening of the inflation–activity relationship (i.e. a flattening of the Phillips curve) in the last decade that is robust both across activity measures and across countries.

Time Varying Monetary Policy Rules and Financial Stress

This stimulating and original Handbook offers an updated and systematic discussion of the relationship between central banks, financial regulation and supervision after the global financial crisis.