The Impact of Monetary Policy on CPI and GDP in the Czech Republic and Switzerland for the Period 2000-2016

Abstract

The aim of this paper is to compare the effectiveness of the monetary policy implemented at the time of low interest rates and foreign exchange interventions in the Czech Republic and Switzerland (using the monetary aggregate M3 and its impact on CPI and GDP). The followed relationship between these values is analyzed using the Engle-Granger cointegration test. These tests are conducted on select statistical data from the years 2000 to 2016. The input data are quarterly in nature and have been seasonally adjusted. For determining the cointegration relationship, it is possible to proceed with the Engle-Granger test, which is meant to determine the long-term relationship between the effectiveness of the monetary policy – between the monetary aggregates M3 and GDP and the relationship between M3 and CPI in the Czech Republic and Switzerland. On the basis of these tests, it was found that there is no cointegration relationship between any time series at a level of significance of 0.05; this means that no long-term relationship was found between the M3 and GDP and also for M3 and CPI. Not finding long-term relationships between M3 and CPI, respectively GDP, means that the monetary policy in the Czech Republic and Switzerland was in the period 2000-2016 ineffective.