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Inflation targeting in the UK: Lessons for the Czech Republic

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  • Katerina Smidkova

Abstract

The paper tries to derive lessons from the UK experience with inflation targeting (IT) for the Czech monetary policy. Reasons for introducing the IT in both countries have been very similar. After intermediate targets failed, both central banks searched for a new strategy. When implementing the IT scheme, their approaches have been very similar although in some cases different tools have been implemented in order to overcome generally recognized problems. For example, flexibility has been gained by reduction in targeted index in the Czech case while explicit exemptions have been introduced in the UK case. The UK experience with the IT shows that inflation might be reduced towards targeted level faster than expected. Some other policy dilemmas from the UK experience appear relevant for the Czech central bank. For example, due to exchange-rate appreciation, domestically produced inflation might exceed aggregate inflation. The paper also concentrates on role of forecasting in the IT framework.

Suggested Citation

  • Katerina Smidkova, 2003. "Inflation targeting in the UK: Lessons for the Czech Republic," Macroeconomics 0304006, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0304006
    Note: Type of Document - ; pages: 21 . This policy note from 1998 has not been published elsewhere.
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    References listed on IDEAS

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    1. Andrew Haldane, 1997. "Some Issues in Inflation Targeting," Bank of England working papers 74, Bank of England.
    2. Clive Briault & Andrew Haldane & Mervyn A. King, 1997. "Independence and Accountability," Palgrave Macmillan Books, in: Iwao Kuroda (ed.), Towards More Effective Monetary Policy, chapter 10, pages 299-340, Palgrave Macmillan.
    3. Mervyn King, 1994. "Monetary policy in the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 15(3), pages 109-128, August.
    4. Alastair Cunningham, 1996. "Measurement Bias in Price Indices: An Application to the UK's RPI," Bank of England working papers 47, Bank of England.
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    • E - Macroeconomics and Monetary Economics

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