Pomenkova, Jitka and Kapounek, Svatopluk (2009): Interest rates and prices causality in the Czech Republic  Granger approach. Published in: Agricultural Economics , Vol. 55, No. 7 (2009): pp. 347356.

PDF
MPRA_paper_27390.pdf Download (218kB)  Preview 
Abstract
Monetary policy analysis concerns both the assumptions of the transmission mechanism and the direction of causality between the nominal (i.e. the money) and real economy. The traditional channel of monetary policy implementation works via the interest rate changes and their impact on the investment activity and aggregate demand. Altering the relationship between the aggregate demand and supply then impacts the aggregate price level and hence inflation. Alternatively, the PostKeynesians postulate money as a residual. In their approach, banks credit in response to the movements in investment activities and demand for money. In this paper, the authors use the VAR (i.e. the vector autoregressive) approach applied to the “Taylor Rule“ concept to identify the mechanism and impact of the monetary policy in the small open posttransformation economy of the Czech Republic. The causality (in the Granger sense) between the interest rate and prices in the Czech Republic is then identified. The two alternative modelling approaches are tested. First, there is the standard VAR analysis with the lagged value of interest rate, inflation and economic growth as explanatory variables. This model shows one way causality (in the Granger sense) between the inflation rate and interest rate (i.e. the inflation rate is (Granger) caused by the lagged interest rate). Secondly, the lead (instead of lagged) values of the interest rate, inflation rate and real exchange rate are used. This estimate shows one way causality between the inflation rate and interest rate in the sense that interest rate is caused by the lead (i.e. the expected future) inflation rate. The assumptions based on money as a residual of the economic process were rejected in both models.
Item Type:  MPRA Paper 

Original Title:  Interest rates and prices causality in the Czech Republic  Granger approach 
Language:  English 
Keywords:  exogenous and endogenous money, transmission mechanism, Taylor rule 
Subjects:  E  Macroeconomics and Monetary Economics > E4  Money and Interest Rates > E43  Interest Rates: Determination, Term Structure, and Effects C  Mathematical and Quantitative Methods > C3  Multiple or Simultaneous Equation Models ; Multiple Variables > C32  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models E  Macroeconomics and Monetary Economics > E1  General Aggregative Models > E12  Keynes ; Keynesian ; PostKeynesian 
Item ID:  27390 
Depositing User:  Svatopluk Kapounek 
Date Deposited:  23 Dec 2010 07:37 
Last Modified:  26 Sep 2019 09:58 
References:  Angeloni, I. et al. (2002): Monetary Transmission in The Euro Area: Where Do We Stand? European Central Bank: Working Paper No. 114. Enders, W. (2004): Applied Econometric Time Series, USA, 460 s. ISBN –0471230650 Fontana, G. – PalacioVera, A. (2003): Modern Theory and Practise of Central Banking: An Endogenous Money Perspective. In ROCHON, L.P. – ROSSI, S. Modern Theories of Money, Edwar Elgar Publishing, 2003, pp.4166, ISBN: 1840647892 Green, W. H. (2003): Econometrics analysis, New Yersey, 1026 s. ISBN 0130661899 Jílek, J. (2004): Peníze a měnová politika. Praha: Grada Publishing, s.375564, ISBN: 8024707691 Mach, M. (2002): Makroekonomie, pokročilejší analýza, 3. část, Melandrium, Praha 2002, 167 pp., ISBN 8086175227 Romer, D. (2001): Advanced Macroeconomic, USA, 651 pp., ISBN 0072318854 Sedigghi, H. R..  Lawler, K. A.  Katos., A. V. (2000): Econometrics. A practical approach. New York, 396 s., ISBN 0415156459 Law Nr.6/1993 Sb. [online]. [cit. 20081210]. Accessible at <http://www.cnb.cz/m2export/sites/www.cnb.cz/cs/legislativa/zakony/download/zakon_o_cnb.pdf> Živělová, I. (2004) : Possible approaches to the valuation of a firm. Agric. Econ. – Czech, 50: 204206 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/27390 