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Hits and Misses: Ten Years of Czech Inflation Targeting (Introduction)

The first 10 years of Czech Republic's inflation targeting regime have been remarkable by the persistent undershooting of the inflation targets. This article is an introduction to a special issue aimed at analyzing the factors of the undershooting. The articles in this issue explore the following hypotheses: the impact of a series of counter-inflationary shocks; a biased forecasting system; a faulty decision-making system; and the role of inflation expectations. Based on a meta-analysis of the articles, this introduction suggests that the undershooting cannot be explained by a single factor, although counter-inflationary shocks are identified most frequently. The impact of the undershooting on central bank credibility was modest, partly because the forecasts were accompanied by explicit discussions of the forecast risks.

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Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 58 (2008)
Issue (Month): 09-10 (December)
Pages: 398-405

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Handle: RePEc:fau:fauart:v:58:y:2008:i:9-10:p:398-405
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  1. Ales Bulir & Katerina Smidkova & Viktor Kotlan & David Navratil, 2007. "Inflation Targeting and Communication: Should the Public Read Inflation Reports or Tea Leaves?," Working Papers 2007/14, Czech National Bank, Research Department.
  2. Stefano Eusepi & Bruce Preston, 2010. "Central Bank Communication and Expectations Stabilization," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 235-71, July.
  3. Tomáš Holub & Jaromír Hurník, 2008. "Ten Years of Czech Inflation Targeting: Missed Targets and Anchored Expectations," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(6), pages 67-86, November.
  4. Miguel A. Savastano & Paul R. Masson & Sunil Sharma, 1997. "The Scope for Inflation Targeting in Developing Countries," IMF Working Papers 97/130, International Monetary Fund.
  5. Athanasios Orphanides & David W. Wilcox, 1996. "The opportunistic approach to disinflation," Finance and Economics Discussion Series 96-24, Board of Governors of the Federal Reserve System (U.S.).
  6. Jaromir Benes & Tibor Hledik & Michael Kumhof & David Vavra, 2005. "An Economy in Transition and DSGE: What the Czech National Bank’s New Projection Model Needs," Working Papers 2005/12, Czech National Bank, Research Department.
  7. Franta, Michal & Saxa, Branislav & Šmídková, Katerina, 2007. "Inflation persistence: euro area and new EU Member States," Working Paper Series 0810, European Central Bank.
  8. Kateøina Šmídková, 2005. "How Inflation Targeters (Can) Deal with Uncertainty," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(7-8), pages 316-332, July.
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