Ten Years of Czech Inflation Targeting: Missed Targets and Anchored Expectations

This paper focuses on the Czech Republic's first ten years of experience with its inflation-targeting regime. Under this regime, the Czech Republic has successfully achieved disinflation. However, there were two periods of substantial inflation target undershooting and economic slack, related t...

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Bibliographic Details
Published in:Emerging markets finance & trade 2008-11, Vol.44 (6), p.67-86
Main Authors: Holub, Tomáš, Hurník, Jaromír
Format: Article
Language:English
Subjects:
Economic expectations
Economic inflation
Emerging markets
Exchange rates
expectations surveys
Foreign exchange rates
Inflation
inflation expectations
Inflation rates
Inflation shocks
Inflation targeting
Monetary policy
National banks
Price shocks
Rational expectations
Studies
Volatility
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Summary:This paper focuses on the Czech Republic's first ten years of experience with its inflation-targeting regime. Under this regime, the Czech Republic has successfully achieved disinflation. However, there were two periods of substantial inflation target undershooting and economic slack, related to two episodes of sharp exchange rate appreciation. Dealing with exchange rate volatility has been a key challenge for inflation targeting in the Czech Republic. Despite the missed targets, though, the regime has been successful at anchoring the inflation expectations of analysts and firms close to the announced targets, suggesting that it has worked well as a nominal anchor for the economy.
ISSN:1540-496X
1558-0938
DOI:10.2753/REE1540-496X440605