What is the Appropriate Rate of Disinflation to Be Targeted in the Czech Economy?

Lavan Mahadeva and Katerina Smidkova ()

Macroeconomics from EconWPA

Abstract: 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.

Keywords: disinflation; czech; inflation; targeting (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec and nep-tra
Date: 2003-03-21
Note: Type of Document - ; pages: 14 . WP CNB-SM No 33
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0303015

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