The Exchange Rate as an Instrument at Zero Interest Rates: The Case of the Czech Republic
Tomas Holub (),
Katerina Smidkova and
Bořek Vašíček ()
Research and Policy Notes from Czech National Bank
This study examines the use of the exchange rate by the Czech National Bank as a monetary policy instrument at the zero lower bound on interest rates. It provides a review of the economic literature on unconventional monetary policy instruments and particularly on the possibility of using the exchange rate. It explains the CNBâ€™s reasons for further easing monetary policy and for choosing the exchange rate instrument and its specific level, and discusses its expected benefits in the case of the Czech Republic. It also explains why the CNB ultimately decided to transparently declare a one-sided exchange rate commitment with potentially unlimited foreign exchange interventions. The article concludes by assessing the impacts of the exchange rate weakening on the Czech economy to date, as compared to what the CNB had expected, and by describing the public debate of the CNBâ€™s action and related changes in its communication strategy.
Keywords: Asymmetric exchange rate commitment; deflation; exchange rate; foreign exchange interventions; inflation expectations; monetary policy; unconventional instruments; zero lower bound (search for similar items in EconPapers)
JEL-codes: E31 E37 E58 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:rpnrpn:2014/03
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