|| prof. Roman Horváth Ph.D., |
|ISSN / ISBN:
||William Davidson Institute Working Papers, No. 848
||University of Michigan
||equilibrium interest rates, Taylor rule, augmented Kalman filter
||E43, E52, E58
||Horvath, Roman. 2006. Real-Time Time-Varying Equilibrium Interest Rates: Evidence on the Czech Republic, William Davidson Institute Working Papers, No. 848.
||This paper examines (real-time) equilibrium interest rates in the Czech Republic in 2001:1-2005:12 estimating various specifications of simple Taylor-type monetary policy rules. First, we estimate it using GMM. Second, we apply structural time-varying coefficient model with endogenous regressors to evaluate fluctuations of equilibrium interest rate over time. The results suggest that there is substantial interest rate smoothing and central bank primarily responds to inflation (forecast) developments. The estimated parameters seem to sustain the equilibrium determinacy. We find that the equilibrium interest rates gradually decreased over sample period to the levels comparable to those of in the euro area reflecting capital accumulation, smaller risk premium and successful disinflation in the Czech economy.