A Model Interpretation of the Czech Inflation Targeting and the Monetary Policy

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Authors

VAŠÍČEK Osvald MUSIL Karel

Year of publication 2005
Type Article in Proceedings
Conference Proceedings of the 23rd International Conference Mathematical Methods in Economics 2005
MU Faculty or unit

Faculty of Economics and Administration

Citation
Field Economy
Keywords DSGE model; New Keynesian model; monetary policy; Taylor rule; inflation targeting; rational expectations; Kalman filter with likelihood function; Kalman filter smoother
Description The paper introduces a New Keynesian DSGE model that describes the inflation targeting policy in the Czech economy. This model is based strictly on microfoundations and consists of representative finished and intermediate goods-producing firms, representative households and a cetral bank. The central bank implements its policy according to the generalized Taylor rule. A suitable method for solving the model is the Kalman filter evaluating a likelihood function and the Kalman smoother evaluating a time series of a smoothed estimate of the unobserved variable (target inflation). The model seems to give an approximation of the behavior of the Czech economy.
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