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The Czech Approach to Inflation Targeting

Listed author(s):
  • Miroslav Hrncir

    (Czech National Bank)

  • Katerina Smidkova

    (Czech National Bank)

The introduction of inflation targeting (IT) by the Czech National Bank in 1997 was an important event in history of IT since the Czech Republic was the first transitional country to adopt it. This study has been the first document describing consistently the Czech approach to IT. It reviews the reasons for a change in the Czech monetary policy strategy and focuses on issues specific to the Czech case. The study argues that IT is a strategy that can be under certain conditions adopted by central banks in countries in transition even though their typical goal is to disinflate instead of stabilising low inflation. On one hand, according to the Czech experience, IT offers several benefits, such as increasing control over expectations and short-term flexibility of monetary strategy, that are attractive for economy in transition. On the other hand, constraints imposed by period of transition as well as by openness of economy are present no matter which monetary strategy is chosen by the central bank. Implied costs should not be attributed to a particular monetary strategy.

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Paper provided by EconWPA in its series Macroeconomics with number 0303019.

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Length: 21 pages
Date of creation: 26 Mar 2003
Handle: RePEc:wpa:wuwpma:0303019
Note: Type of Document - ; pages: 21 . Paper from Proceedings: Workshop on Inflation Targeting (1999)Czech National Bank, Prague.
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