Analysis of the Czech National Bank's Monetary Policy Through the Perspective of the Taylor Rule

This bachelor´s thesis analyzes the monetary policy of the Czech National Bank (CNB) through various specifications of the Taylor rule. The thesis first describes the theoretical foundations of monetary policy, including its goals and regimes. Then the theoretical basis of the Taylor rule, its various specifications, and an endogenous description of the central bank's behavior using the Loss Function are presented. In the empirical part of the thesis, eight specifications of the Taylor rule are estimated and evaluated based on GMM estimates, strict adherence to specification, and estimates from the rolling-window method in comparison with the observed trajectory of the CNB interest rates. Among these approaches, the specifications with an interest rate smoothing parameter were identified as the most suitable for describing the behavior of the CNB. This suggests that the CNB prefers gradual and moderate changes in rates. Furthermore, according to the estimates, the CNB does not take the output gap into consideration, as the values of this indicator were not statistically significant in any of the examined specifications. This resulting estimate of the Taylor rule specification contributes to understadning of the CNB´s decision-making on interest rates and can serve as a useful tool for further economic research. It can also be used for proper calibration of monetary policy rules in forecasting models.