The interest rate policy of the Magyar Nemzeti Bank typically consists of taking several smaller steps in one direction. Other central banks follow similar practices. Their interest rate policy actions are characterised by gradual changes: in other words, they avoid sudden, major changes in...

March 2011 marked the introduction of the MNB’s Monetary Policy Model (MPM), representing a paradigm shift in both inflation forecasting and monetary policy decision support. In contrast to the previous conditional projections, the MPM offers an endogenous definition for both the policy rate...

In the first stage of the crisis, the Federal Reserve (Fed) rapidly embarked on interest rate cuts followed by several rounds of substantial quantitative easing. However, the marked monetary easing and the persistently low interest rates triggered mounting fears of inflation, calling into...

The instruments applied by the ECB and the Fed1 during the crisis were based on similar principles, but as the ECB and the Fed function in different financial intermediary systems, they relied on different tools to respond to different types of challenges. Both institutions increased liquidity...

In an inflation targeting regime, the best possible knowledge of demand-side inflationary pressure is of priority importance for monetary policy. In applied macroeconomic models, this is traditionally represented by the actual position of the cyclical component of GDP (the output gap). This...

This article provides an overview of international experiences with the use of unconventional central bank instruments. The application of unconventional instruments may be justified by the existence of financial market friction, turmoil, failure or constraint, when instruments that change the...

Since March 2011 the projections published by the Magyar Nemzeti Bank have been prepared using the Monetary Policy Model (MPM), in which interest rates are determined endogenously as a function of macroeconomic variables. This paper explains the characteristics of the interest rate rule of the...

With a VAT increase, prices go up in the economy as businesses pass through the effects of the tax rise. Technically, this means that the consumer price index increases for one year; this is called the first-round effect. If, however, the expectations of economic agents are not completely...

In its monetary policy decision-making, the central bank of Hungary primarily focuses on the achievement of price stability. Without prejudice to this objective, it supports the maintenance of financial stability and the economic policy of the Government. While the low inflation environment...

Learning market participants’ policy rate expectations is a major issue for central banks. The underlying reason for this is that the interest rate expectations of market participants may themselves contain information on market participants’ perceptions of the economic prospects, which...