The Optimal Monetary Rule for the Slovak Republic

Abstract

The optimal monetary rules should help to economic agents to fortify their anticipation about monetary policy. At the same time they should make application of monetary policy by central bank more effective. Consequently numerous central banks as well as other economic agents try to determinate an optimal monetary rule responding to given macroeconomic conditions. However this can be very difficult especially for transition economies or post-transition countries. This is the case of the Slovak Republic; its time series are relatively short and macroeconomic environment has to face different shocks. Thus, a monetary rule should be just some kind of recommendation for monetary authority that does not have to be followed as a binding commitment.

Key words: Optimal monetary rule, Taylor rule, Reaction function, Central bank, The National Bank of Slovakia.
JEL: E50, E52, E58.