A Case Study on Macroeconomic Policies and Their Interactions of Czech Republic

The paper discusses interrelations and potential conflicts between macroeconomic policies and
provides empirical analysis of interactions between monetary and fiscal policy in the Czech Republic.
Optimal mix of macroeconomic policies should foster social and economic welfare and ensure smooth
operation of the economy in case of a severe adverse shock. Ongoing global COVID-19 pandemic
might be one example of such a situation. Although policy-consistent measures against immediate
effects of the crisis are crucial, one should be also mindful of the importance of policy coordination in
the aftermath of the acute phase of recession. Changes in policy conduct across the time are also
documented. To this end, we build and estimate a six-variable Bayesian VAR and propose some
refinements to the modelling framework. The results point to the lack of complementarity between
policy actions adopted by the authorities and suggest that there is still enough room for enhancing the
effectiveness of economic policies. Better coordination between macroeconomic policies is
particularly needed in times of severe economic distress like the current COVID-19 pandemic.
However, a detailed analysis of their contribution to the stabilization of the economy in different
phases of the business cycle is important and might be a subject of future research.