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Can Inflation Forecast and Monetary Policy Path be Really Useful? The Case of Czech Republic

Magdalena Szyszko () and Karolina Tura-Gawron ()
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Magdalena Szyszko: Wyzsza Szkola Bankowa w Poznaniu, Poland

No 49/2014, Working Papers from Institute of Economic Research

Abstract: Producing and revealing inflation forecasts is believed to be the best way of implementing a forward-looking monetary policy. The article focuses on inflation forecast targeting (IFT) at the Czech National Bank (CNB) in terms of its efficiency in shaping consumers’ inflation expectations. The goal of the study is to verify accuracy of the inflation forecasts, and their influence on inflation expectations. The research is divided into four stages. At the first stage central bank credibility is examined. At the second stage – accuracy of the inflation forecasts. The next step covers a qualitative analysis of IFT implementation. Finally the existence of the interdependences of inflation forecast, optimal policy paths and inflation expectations are analyzed. Credibility of the central bank, accuracy of the forecast and decision-making procedures are the premises for the existence of relationship between forecasts and expectations. The research covers July 2002 - end of 2013. Its methodology includes the qualitative analysis of decision-making of the CNB, quantitative methods (Kia and Patron formula, MAE forecasts errors, quantification of expectations, non-parametric statistics). The results show the existence of interdependences between inflation forecasts and expectations of moderate strength. The preconditions of such interdependences are partially fulfilled. The research opens the field for cross-country comparisons and for quantification of IFT implementation.

Keywords: inflation forecasts; inflation forecast targeting; policy path; inflation expectations (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac, nep-mon and nep-tra
Date: 2014-12, Revised 2014-12
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http://www.badania-gospodarcze.pl/images/Working_Papers/2014_No_49.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: CAN INFLATION FORECAST AND MONETARY POLICY PATH BE REALLY USEFUL? THE CASE OF THE CZECH REPUBLIC (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pes:wpaper:2014:no49

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