What Is the Appropriate Rate of Disinflation to Be Targeted in the Czech Economy?
What is the optimal rate of disinflation to be targeted during transition? This question has attracted more attention under the inflation-targeting regime than under other monetary strategies, because explicit inflation targets are used to anchor expectations. These targets signal what rate of disinflation is targeted by policymakers. Deciding what level of disinflation is least costly in terms of the volatility of important economic variables is not straightforward, since costs depend on monetary transmission in a given economy. In this paper, a small, aggregate, forward-looking model of Czech monetary transmission is used to compare the consequences of different disinflation strategies that are approximated with alternative policy rules. Our results suggest that trajectories with a more linear tendency are superior to trajectories that postpone disinflation or reduce inflation suddenly.
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| Date of creation: | Jun 2001 |
| Date of revision: | |
| Handle: | RePEc:cnb:mpaper:2001/33 |
| Contact details of provider: | Postal: Phone: 00420 2 2442 1111 Fax: 00420 2 2421 8522 Web page: http://www.cnb.cz/en/research/research_intro/Email: More information through EDIRC
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