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Dynamics of Czech Inflation: The Role of the Trend and the Cycle

Michal Franta and Ivan Sutoris

Working Papers from Czech National Bank

Abstract: We decompose the Czech inflation time series into the trend and short-lived deviations from the trend by means of an unobserved component stochastic volatility model. We then carry out a regression analysis to interpret the two inflation components. The results indicate a fall in the inflation trend since the start of the sample (1998) which coincides with the introduction of the inflation targeting regime and with subsequent changes to the inflation target pursued by the Czech National Bank. Moreover, the regression analysis suggests that inflation expectations play a dominant role in the evolution of the trend. The behavior of the deviations from the trend exhibits features of an open-economy Phillips curve.

Keywords: Czech inflation; inflation trend; Phillips curve; UCSV (search for similar items in EconPapers)
JEL-codes: E31 E5 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-cba, nep-ets, nep-mac, nep-mon, nep-ore and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2020/1

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