CHANGES IN MONETARY POLICY RESPONSES IN THE CZECH REPUBLIC, HUNGARY AND POLAND

In this paper, we analyse how the monetary policy responses of the Czech National Bank, the Hungarian National Bank, and the National Bank of Poland have changed over the period from 1996 Q1 to 2022 Q3 using the Kalman filter. Our findings are as follows. Firstly, we identify concealed discretion among the monetary policy authorities, which is traced through significant changes in their monetary policy parameters, highlighting the importance of applying a time-varying estimation framework. Secondly, we observe a decreasing response of policy rates to the inflation gap over the observed period. The reduced response in interest rates aligns with the anchored inflation expectations in the Czech Republic and Poland. Thirdly, the interest rate smoothing parameter has declined over the observed period, reflecting the central banks’ increased willingness to adjust policy rates more vigorously. Additionally, we find a significant decrease in the long-term equilibrium interest rates, indicated by the policy-neutral rate, across the analysed countries.