Modelling transmission mechanism of monetary policy in the Czech Republic

Lavan Mahadeva and Katerina Smidkova ()

Macroeconomics from EconWPA

Abstract: In December 1997, the Czech Republic became the first transitional economy to adopt an inflation-targeting (IT) framework. This paper addresses two important topics: optimal inflation-targeting horizon and optimal speed of disinflation. A small, aggregate, forward-looking model of the Czech monetary transmission was calibrated and estimated. Stochastic simulations were used to compare consequences of different forecast horizons and different targeted disinflation paths. Our first conclusion is that the optimal targeting horizon is probably less than a year. Secondly, postponing the initial disinflation does not imply significant gains in terms of lower output volatility or a smaller external imbalance.

Keywords: Inflation targeting; Transmission; transition; Simulations (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-mon and nep-tra
Date: 2004-02-27
Note: Type of Document - ; pages: 28. The paper has been published in Mahadeva, Sterne (ed.) Monetary policy framework in a global context, Routledge, London. See http://www.bankofengland.co.uk/ccbs/publication
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0402032

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