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Targeting Inflation under Uncertainty: Policy Makers’ Perspective

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  • Katerina Smidkova

    (Czech National Bank)

Abstract

Monetary policy makers need to build two pillars for their inflation targeting strategy. Firstly, a methodology for producing the central forecast should be developed, since the whole decision process is more easily organised around a model forecast. Secondly, a methodology for dealing with uncertainties is equally important, because a poor evaluation of uncertainties can significantly reduce the quality of monetary policy decisions. Reflecting the further progress of the methodological debate inside the CNB, this paper aims to provide suggestions to policy makers as to which methods could be used to assess uncertainty during the monetary policy decision process. Suggestions for each stage of the process are summarised in the final chapter. These take into account the findings of surveys of three very distinct sources – the economic literature on monetary policy under uncertainty, the managerial literature on decision analysis, and the real-life strategies of five central banks. The lessons from these three surveys are presented in separate chapters.

Suggested Citation

  • Katerina Smidkova, 2003. "Targeting Inflation under Uncertainty: Policy Makers’ Perspective," Macroeconomics 0304003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0304003
    Note: Type of Document - ; pages: 36 . CNB Research and Policy Note 2003/2
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    Cited by:

    1. Roman Horváth, 2008. "Asymmetric Monetary Policy in the Czech Republic?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(09-10), pages 470-481, December.
    2. Bulíř Aleš & Čihák Martin & Šmídkova Kateřina Š, 2013. "Writing Clearly: The ECB’s Monetary Policy Communication," German Economic Review, De Gruyter, vol. 14(1), pages 50-72, February.
    3. 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.
    4. Katerina Smidkova, 2003. "Methods Available to Monetary Policy Makers to Deal with Uncertainty," Macroeconomics 0310002, University Library of Munich, Germany.

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    More about this item

    Keywords

    Inflation targeting Uncertainty Decision analysis Pay-off matrix;

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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