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The Causal Impact of the Rapid Czech Interest Rate Hike on the Czech Exchange Rate Assessed by the Bayesian Structural Time Series Model

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  • Ondrej Bednar

    (Prague University of Economics and Business)

Abstract

I have employed the Bayesian Structural Time Series model to assess the recent interest rate hike by the Czech Central Bank and its causal impact on the Koruna exchange rate. By forecasting exchange rate time series in the absence of the intervention we can subtract the observed values from the prediction and estimate the causal effect. The results show that the impact was little and time limited in one model specification and none in the second version. It implies that the Czech Central Bank possesses the ability to diverge significantly from the Eurozone benchmark interest rate at least in the short term. It also shows that the interest rate hike will not be able to curb global inflation forces on the domestic price level.

Suggested Citation

  • Ondrej Bednar, 2021. "The Causal Impact of the Rapid Czech Interest Rate Hike on the Czech Exchange Rate Assessed by the Bayesian Structural Time Series Model," International Journal of Economic Sciences, European Research Center, vol. 10(2), pages 1-17, December.
    • Handle: RePEc:aop:jijoes:v:10:y:2021:i:2:p:1-17
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    References listed on IDEAS

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    Cited by:

    1. KADEŘÁBKOVÁ Božena & BEDNÁŘ Ondřej, 2022. "How Much Can the Monetary Policies of Small Open Economies Neighbouring the Eurozone Be Independent?," European Journal of Interdisciplinary Studies, Bucharest Economic Academy, issue 02, June.
    2. Klára Čermáková & Eduard Hromada, 2022. "Change in the Affordability of Owner-Occupied Housing in the Context of Rising Energy Prices," Energies, MDPI, vol. 15(4), pages 1-18, February.

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    More about this item

    Keywords

    monetary policy; exchange rate; optimum currency area;
    All these keywords.

    JEL classification:

    • F39 - International Economics - - International Finance - - - Other
    • A10 - General Economics and Teaching - - General Economics - - - General

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