Mathematical Analysis of the Transmission Mechanism of Monetary Policy of the National Bank of Slovakia
Ján Klacso
PhD thesis advisor: Viktor Witkovský

PhD thesis - Full text    (PDF 1,30 MB)
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Summary: In this thesis, we focus on the monetary policy and the transmission mechanism of the monetary policy of the National Bank of Slovakia from the period of the adoption of qualitative monetary policy in 2000 to the end of 2008 when Slovakia joined the euro area. First we estimate a small macroeconomic VEC model using a Bayesian Mixed Frequency estimator. We interpret the estimated cointegrating vector as the monetary policy reaction function. Based on estimation results it is the core inflation, the level of the EUR/SKK exchange rate, the real growth of the GDP and the balance of trade that entered the reaction function of the NBS. Next we build up a New Keynesian Macroeconomic Model for the Slovak economy. We show a possible way how investments into residential properties can be separated from consumption in the IS curve. The model consisting of the IS curve, the Phillips curve, the reaction function of the NBS and a simple equation describing the development of the property prices is estimated using the method of FIML. Estimation results show that the output gap was mainly affected by the development of the property prices and the expected development of the output gap; the inflation was affected to a great extent by the inflation of euro area and by regulated prices. Property prices followed the expected development of the property prices and the policy rate. In case of the reaction function, the positive development of the domestic inflation allowed the NBS to gradually harmonize its policy rate to those of the ECB in the process of preparation for the euro adoption. Based on the two models we conclude that an independent monetary policy should not dampen the negative impact of the global economic downturn on the Slovak economy in 2009.
Related papers

[1] J. Klacso: The Effects of the Euro Area Entrance on the Monetary Transmission Mechanism in Slovakia in Light of the Global Economic Recession, Czech Journal of Economics and Finance, 65, 2015, no. 1, pp. 55-83