The Reaction Function of Three Central Banks of Visegrad Group

The aim of our paper is to formulate and empirically verify the simple backward looking econometric model of the monetary policy rule, which would be able to describe the development of monetary policy rate, namely only on the basis of statistically measured and at the given time available information. We focus on the Czech National Bank, the National Bank of Poland and the Magyar Nemzeti Bank in the period of January 1999 to April 2012. In the present paper we discuss some methodological problems associated with the ex-post empirical verification of the central bank's monetary policy rule. We construct an empirical model of the monetary policy rule, justify the choice and the inclusion of explanatory variables, analyse the statistical properties of time series, and verify the alternative forms of econometric models. Our analysis showed that the development of monetary policy rate in the reporting period can be explained by the past and present development of four explanatory variables: yearly inflation rate, exchange rate, ECB main refinancing rate and growth rate of M2. The annualized inflation rate proved to be statistically insignificant in the model. We find interesting that the statistical quality of the estimated model was further increased after a six-month lag of the annual inflation rate added to the model.