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The Problem of the Yearly Inflation Rate and Its Implications for the Monetary Policy of the Czech National Bank

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  • Josef Arlt
  • Milan Bašta

Abstract

The yearly inflation rate might not always be an appropriate measure of inflation, mainly due to the fact that it does not provide up-to-date information on the level of inflation. The harmonic analysis shows that the yearly inflation rate deforms and delays the information with respect to the monthly inflation rate and is thus delayed behind the true inflation at yearly levels. This conclusion can be extremely important in the forecasting of the inflation rate at yearly levels and in the process of economic decision making. The problem of the yearly inflation rate is illustrated on the example of the monetary policy of the Czech National Bank. The cointegration analysis revealed the presence of the long-run relationship of the repo rate, the yearly adjusted inflation rate and the euro area repo rate in the analyzed period.

Suggested Citation

  • Josef Arlt & Milan Bašta, 2010. "The Problem of the Yearly Inflation Rate and Its Implications for the Monetary Policy of the Czech National Bank," Prague Economic Papers, Prague University of Economics and Business, vol. 2010(2), pages 99-117.
    • Handle: RePEc:prg:jnlpep:v:2010:y:2010:i:2:id:366:p:99-117
    DOI: 10.18267/j.pep.366
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    References listed on IDEAS

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    1. Josef Arlt, 1998. "The Problem of Short-term and Long-term Inflation Rate," Politická ekonomie, Prague University of Economics and Business, vol. 1998(5).
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    Cited by:

    1. Josef Arlt & Martin Mandel, 2014. "The Reaction Function of Three Central Banks of Visegrad Group," Prague Economic Papers, Prague University of Economics and Business, vol. 2014(3), pages 269-289.
    2. Josef Arlt & Martin Mandel, 2012. "Je možné předpovídat repo sazbu ČNB na základě zpět hledícího měnového pravidla? [Is it Possible to Predict the CNB Repo Rate on the Basis of the Backward-Looking Monetary Rule?]," Politická ekonomie, Prague University of Economics and Business, vol. 2012(4), pages 484-504.
    3. Josef Arlt, 2023. "The problem of annual inflation rate indicator," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2772-2788, July.

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      More about this item

      Keywords

      monetary policy; forecasting; inflation rate; harmonic analysis; linear filtration;
      All these keywords.

      JEL classification:

      • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
      • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
      • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
      • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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