Estimating Natural Rate of Interest and Equilibrium Exchange Rate: A Case of the Czech Republic

Zdeněk Pikhart; Pavla Froňková

doi:10.2478/revecp-2019-0013

.blurhash-client-img { display: none !important; }

Estimating Natural Rate of Interest and Equilibrium Exchange Rate: A Case of the Czech Republic

Review of Economic Perspectives

Volume 19 (2019): Issue 4 (December 2019)

By: Zdeněk Pikhart and Pavla Froňková

Open Access

|Dec 2019

Abstract

Article deals with estimating real natural interest rate and exchange rate to construct monetary conditions index suitable for the Czech open economy. Despite unobservable characteristics of underlying interest rates and exchange rate, the importance of reference indicators for monetary policy is crucial. Proposed monetary condition index in gap form examines monetary impulse on economic and credit cycle in inflation targeting model.

References

ARCHIBALD, J., HUNTER, L. (2001). What is the neutral real interest rate, and how can we use it? Reserve Bank of New Zealand. Bulletin vol. 64, no. 3, pp. 15-23.
Search in Google Scholar Back to article
BABETSKII, I., BALAZS, E. (2005). Equilibrium Exchange rate in the Czech Republic: How good is the Czech BEER? William Davidson Institute Working Paper Number 781.10.2139/ssrn.770405
Search in Google Scholar Back to article
BENCIK, M. (2009). The equilibrium interest rate – theoretical concepts and applications. Slovak National Bank. Vol. 17, no. 4, pp. 1-11.
Search in Google Scholar Back to article
BRAND, C., BIELECKI, M., PENALVER, A. (2018). The Natural Rate of Interest Estimates, Drivers, and Challenges for Monetary Policy. ECB Occassional Paper. Forthcoming.10.2139/ssrn.3328536
Search in Google Scholar Back to article
BRUHA, J., TONNER J. (2017). An Exchange Rate Floor as an Instrument of Monetary Policy: An Ex-post Assessment of the Czech Experience, Working Papers 2017/04, Czech National Bank, Research Department.
Search in Google Scholar Back to article
CARLSTROM, C., STEHULAK, T. (2015). The Long-Run Natural Rate of Interest. Federal Reserve Bank of Cleveland. Economic trends, no. 7.10.26509/frbc-wp-201531
Search in Google Scholar Back to article
CARLSTROM, C., FUERST, T. (2016) The Natural Rate of Interest in Taylor Rules. Federal Reserve Bank of Cleveland. Economic commentary, no. 2016-01.10.26509/frbc-ec-201601
Search in Google Scholar Back to article
CARRILLO, J., ELIZONDO, R., RODRIGUEZ-PEREZ, C., ROLDAN-PENA, J. (2017) What Determines the Neutral Rate of Interest in an Emerging Economy? Banco de Mexico. Research paper, February 9, pp. 1-43.10.36095/banxico/di.2018.22
Search in Google Scholar Back to article
CURDIA, F., TAMBALOTTI, A. (2015). Has U.S. Monetary Policy Tracked the Efficient Interest Rate? Journal of Monetary Economics, no. 70, pp. 72–83. DOI: 10.1016/j.jmoneco.2014.09.00410.1016/j.jmoneco.2014.09.004
Open DOI Search in Google Scholar Back to article
ÉGERT, B., PODPIERA, J. (2008): Structural inflation and real exchange rate appreciation in Visegrad-4 countries: Balassa-Samuelson or something else? Centre for Economic Policy Research no. 20.
Search in Google Scholar Back to article
ENGLE, R. F., GRANGER, C. W. J. (1987): Cointegration and Error Correction: Representation, Estimation, and Testing. Econometrica 55, pp. 251-276. DOI: 10.2307/191323610.2307/1913236
Open DOI Search in Google Scholar Back to article
FRAIT, J., KOMÁREK, L. (1999). Dlouhodobý rovnovážný reálný měnový kurz koruny a jeho determinanty. Výzkumná práce České národní banky č. 9, pp. 147-165.
Search in Google Scholar Back to article
FRIES, S., MESONNIER, J. S., MOUABBI, S., RENNE, J. P. (2016). National natural rates of interest and the single monetary policy in the Euro Area. Banque de France. Working Paper 611.10.2139/ssrn.2887382
Search in Google Scholar Back to article
HLÉDIK, T., VLČEK, J. (2018). Quantifying the Natural Rate of Interest in a Small Open Economy - The Czech Case. Czech National Bank. Working Papers 2018/7.
Search in Google Scholar Back to article
HOLUB, T., ČIHÁK, M. (2003). Price Convergence: What Can the Balassa-Samuelson Model Tell Us? CNB WP No. 8/2003.
Search in Google Scholar Back to article
HORVÁT, R., KOMÁREK, L. (2006): Equilibrium Exchange Rates in EU New Members: Applicable for Setting the ERM II Central Parity?, MPRA Paper No. 1180.
Search in Google Scholar Back to article
HOLSTON, K., LAUBACH, T., WILLIAMS, J. C. (2017). Measuring the Natural Rate of Interest: International Trends and Determinants. Journal of International Economics. Vol. 108(S1), pp. 59-75. DOI: 10.1016/j.jinteco.2017.01.00410.1016/j.jinteco.2017.01.004
Open DOI Search in Google Scholar Back to article
KOMÁREK, L., MELECKÝ, M. (2005): The Behavioral Equilibrium Exchange Rate of the Czech Koruna, CNB Working Paper Series, No. 5/2005.
Search in Google Scholar Back to article
KOMÁREK, L., MOTL, M. (2012). Behaviorální a fundamentální rovnovážný měnový kurz české koruny. Politická ekonomie, No. 2, pp. 147-166. DOI: 10.18267/j.polek.83510.18267/j.polek.835
Search in Google Scholar Back to article
KOMÁREK, L., MOTL M. (2018): Jak si vede náš měnový kurz? [online], ČNB https://www.cnb.cz/cs/o_cnb/cnblog/Jak-si-vede-nas-menovy-kurz/. Accessed 22 Jan. 2019.
Search in Google Scholar Back to article
LAUBAUCH, T., WILLIAMS, J. C. (2003). Measuring the Natural Rate of Interest. The Review of Economics and Statistics. No. 85, pp. 1063-1070. DOI: 10.1162/00346530377281593410.1162/003465303772815934
Open DOI Search in Google Scholar Back to article
MF CR (2018). Macroeconomic Forecast of the Czech Republic. Ministry of Finance of the Czech Republic. November 2018. ISSN 2533-5588.
Search in Google Scholar Back to article
PFEIFER, L., PIKHART, Z. (2015): Vliv měnových podmínek na jednotlivé kategorie cen v České republice v kontextu měnové a makroobezřetnostní politiky. Politická ekonomie, no. 8/2015, pp. 948-966.10.18267/j.polek.1046
Search in Google Scholar Back to article
ROGOFF, K. S., STAVRAKEVA, V. (2008): The Continuing Puzzle of Short Horizon Exchange Rate Forecasting, National Bureau of Economic Research Working Paper 14071.10.3386/w14071
Search in Google Scholar Back to article
TAYLOR, J. (1993). Discretion versus policy rules in practice. Carnegie-Rochester Series on Public Policy. No. 39, pp. 195-214.10.1016/0167-2231(93)90009-L
Search in Google Scholar Back to article
WICKSELL, K. (1898). Interest and Prices. Edition by Kahn, R. F., 1936. London: Macmillan.
Search in Google Scholar Back to article

Articles in this issue

DOI: https://doi.org/10.2478/revecp-2019-0013 | Journal eISSN: 1804-1663 | Journal ISSN: 1213-2446

Journal RSS Feed

Language: English

Page range: 231 - 248

Submitted on: Apr 25, 2019

Accepted on: Oct 10, 2019

Published on: Dec 21, 2019

Published by: Mendel University in Brno

In partnership with: Paradigm Publishing Services

Publication frequency: 2 issues per year

Keywords:

Natural Rate of Interest,

Equilibrium Exchange Rate,

Monetary Conditions Index

Related subjects:

Business and economics,

Political economics,

Economic theory, systems and structures

© 2019 Zdeněk Pikhart, Pavla Froňková, published by Mendel University in Brno
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Volume 19 (2019): Issue 4 (December 2019)