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A Simple, Model-Independent Analysis of Reasons for Non-Fulfillment of the Declared Inflation Target

In: Evaluation of the Fulfilment of the CNB's Inflation Targets 1998-2007

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  • Michal Skorepa

Abstract

In the period 1998-2007, inflation very often deviated from inflation targets of the Czech National Bank, most of these deviations being in the direction of undershooting the targeted level. In this paper, a purely statistical, model-independent procedure is used to search for an answer to the question of whether this clear asymmetry in inflation target fulfillment can be explained more by an asymmetry in outside shock or an asymmetry of the Czech National Bank’s monetary policy. Our results indicate that the latter explanation is statistically more persuading. For the period since 2002, moreover, it looks like the decisions of the Czech National Bank’s Bank Board more or less sticked to the recommendations implicit in materials supplied by the Bank’s forecasting team; the bias in this second period, at least, can therefore be ascribed to the Bank‘s forecasting apparatus rather than preferences of the Bank Board as revealed in its monetary policy decisions.

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Bibliographic Info

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This chapter was published in:

  • Juraj Antal & Zuzana Antonicova & Jan Babecky & Michal Hlavacek & Tomas Holub & Roman Horvath & Jarek Hurnik & Ondra Kamenik & Karel Musil & Jiri Podpiera & Lubos Ruzicka & Michal Skorepa & Katerina S, 2008. "Evaluation of the Fulfilment of the CNB's Inflation Targets 1998-2007," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, number 01 edited by Katerina Smidkova, August.
    This item is provided by Czech National Bank, Research Department in its series Occasional Publications - Chapters in Edited Volumes with number 03.

    Handle: RePEc:cnb:ocpubc:03

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    Related research

    Keywords: inflation targeting; inflation persistence; autoregression models;

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    Cited by:
    1. Volha Audzei & Frantisek Brazdik, 2012. "Monetary Policy and Exchange Rate Dynamics: The Exchange Rate as a Shock Absorber," Working Papers 2012/09, Czech National Bank, Research Department.

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