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Inflation at Risk: The Czech Case

Author

Listed:
  • Michal Franta
  • Jan Vlcek

Abstract

Inflation at Risk provides a coherent description of the risks associated with an inflation outlook. This paper explores the practical applicability of this approach in central banks. The method is applied to Czech inflation to highlight issues related to short data sample. A set of quantile regressions with a non-crossing quantiles constraint is estimated using monthly data from the year 2000 onwards, and the model's in-sample fit and out-of-sample forecasting performance are then assessed. Furthermore, we discuss the Inflation at Risk estimates in the context of several historical events and demonstrate how the approach can inform monetary policy. The estimation results suggest the presence of nonlinearities in the Czech inflation process, which are related to supply-side pressures. In addition, it appears that regime changes have occurred recently.

Suggested Citation

  • Michal Franta & Jan Vlcek, 2025. "Inflation at Risk: The Czech Case," Working Papers 2025/8, Czech National Bank, Research and Statistics Department.
    • Handle: RePEc:cnb:wpaper:2025/8
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    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2025_08.pdf
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    More about this item

    Keywords

    Inflation dynamics; inflation risk; quantile regressions;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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