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Proč centrální banky systematicky podstřelují svůj cíl
[Why central banks undershoot their inflation targets]

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  • Jiří Škop

Abstract

The goal of this article is to explain why central banks undershoot their inflation targets as we can observe also in the case of the Czech Republic. In other words, I am trying to find out if this undershooting is due to unpredictable desinflation shocks or due to asymmetric behaviour of central banks. Specifically, positive deviations from the target (i.e. overshooting) are weighted more in central bank"s loss function than the negative ones. It is shown that the Czech National Bank is asymmetric in its preferences but not so much as in the case of Canada, Sweden and the United Kingdom. On the other hand, some part of undershooting attributes to desinflation shocks hitting the Czech economy.

Suggested Citation

  • Jiří Škop, 2005. "Proč centrální banky systematicky podstřelují svůj cíl [Why central banks undershoot their inflation targets]," Politická ekonomie, Prague University of Economics and Business, vol. 2005(2).
    • Handle: RePEc:prg:jnlpol:v:2005:y:2005:i:2:id:502
    DOI: 10.18267/j.polek.502
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    More about this item

    Keywords

    credibility; central bank; loss function; model; inflation targets; asymmetric preferences;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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