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Efficiency Of Czech National Bank's Monetary Policy And Reasons For Inflation Targeting

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  • Jiří Podpiera

Abstract

This paper offers the analysis ofCzech monetary policy effectiveness during 1993-1996, which was based on the monetarist theory reconunendations. Also, the reasons for inflation targeting policy irnplementation by the Czech National Bank (CNB) are reviewed. In order to accomplish these goals, we develop money demand model based on the Keynesian approach and also use Cagan's model of hyperinflation. Then, we test the validity of these models for the Czech environment. The major conclusion from the Keynesian money demand model estirnation is that the efficiency of nominal interest rate policy is lower tmder the conditions of sudden nominal interest rate increase. Cagan's model of hyperinflation is used to investigate the stability of price level and thus to ascertain whether the Czech economyexperienced "self generating" price growth. We also analyze inflation expectations and uncertainty. Such au analysis ought to elucidate the existence of a rationale for implementing inflation targeting policy. The estirnation technique employs extended Kalmau filter with backward filter runs, which enables us to estimate parameters varying in time.

Suggested Citation

  • Jiří Podpiera, 1998. "Efficiency Of Czech National Bank's Monetary Policy And Reasons For Inflation Targeting," Bulletin of the Czech Econometric Society, The Czech Econometric Society, vol. 5(8).
  • Handle: RePEc:czx:journl:v:5:y:1998:i:8:id:63
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    File URL: http://ces.utia.cas.cz/bulletin/index.php/bulletin/article/view/63
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