Why and How to Assess Inflation Target Fulfilment

The ex post analysis of inflation target fulfilment plays an important role in an inflation targeting framework. The major benefits of ex post analysis are threefold. First, it might improve the forecast accuracy. Second, it helps central bank staff and board members to understand the capabilities and limitations of the forecasts used in their decision-making. Third, it enhances monetary policy transparency and credibility. The primary aim of this paper is to propose a methodological framework for inflation target fulfilment assessment based on partial simulations, as applied in the Czech National Bank. In order to demonstrate the applicability of this framework we analyse the performance of the Czech National Bank between 2002 and 2006. We show that a large part of the inflation target misses in this period can be assigned to bias in the variables describing external developments.Central bank, inflation target, monetary policy performance.

Price-Level Targeting–A Real Alternative to Inflation Targeting?

This paper reviews price-level targeting in the light of current theoretical knowledge and past practical experience. The authors discuss progress in the economic debate on this issue, starting with the traditional arguments discussed in the early 1990s and ending with the most recent literature from the beginning of the new millennium. They devote special attention to the issues of the zero interest rate bound, time consistency, and communication. Practical experience from Sweden in the 1930s and Czechoslovakia in the first few years after WWI is used to illustrate the advantages and disadvantages of price-level targeting. Finally, the similarities of price-level and inflation developments with hypothetical outcomes under price-level targeting are investigated in selected inflation-targeting countries.price-level targeting, deflation, zero bound, communication, time inconsistency

Central Bank Forecasts as a Coordination Device

Do private analysts coordinate their forecasts via central bank forecasts? In this paper, we examine private and central bank forecasts for the Czech Republic. The evolution of the standard deviation of private forecasts as well as the distance from the central bank’s forecasts are used to study whether a coordination effect exists, how it is influenced by uncertainty, and the effects of changes in central bank communication. The results suggest that private analysts coordinate their forecasts for the interest rate and inflation, while no or limited evidence exists for the exchange rate and GDP growth.Central bank, coordination, forecast.

Why Central Bankers Should Disclose: Interest Rate Forecast

This paper deals with theoretical and empirical dimension of publishing interest rates projections by central banks. Its first goal is to review arguments in favor of and against this decision and to illustrate the debate using experience of four central banks which publish or used to publish interest rates forecast. The second objective is to evaluate the Czech National Bank’s capability to efficiently use publishing of its interest rates forecasts to increase further its transparency, accountability and credibility. The authors argue that (i) the CNB meets all requirements needed for making its interest rate forecast public; (ii) more specifically, they do not find any evidence of significantly worse CNB’s performance in interest rates forecasting compared to other institutions; (iii) it is not clear whether the risk assessment in combination with verbal description of interest rate forecast currently used has always been sufficiently precise guidance for the market participants; (iv) after the CNB starts publishing interest rates forecasts in 2008, market expectations will probably move closer to the CNB’s view which should in turn enhance accountability and credibility of the CNB’s forecasts and improve the efficiency of its monetary policy conduct at all.central bank, interest rate, forecast

Monetary Policy before Euro Adoption: Challenges for EU New Members

This article analyzes the main issues for monetary policy in new EU member states before their euro adoption. These are typically rooted in the challenge of fulfilling concurrently of the Maastricht inflation and exchange rate criterion, as these countries are experiencing equilibrium real exchange rate appreciation. In this article we first distinguish between the wording, written interpretation and “revealed” interpretation of the inflation and exchange rate criteria. Then we discuss the options for monetary policy in the period of fulfilment of these criteria in terms of its transparency, its continuity with the previous monetary policy regime, the choice of central parity for the ERM II, the setting of the fluctuation bandwidth, the probability of fulfilment of both criteria and the impact on economic stability.http://deepblue.lib.umich.edu/bitstream/2027.42/57233/1/wp853 .pd

Price-Level Targeting - A Real Alternative to Inflation Targeting?

This paper reviews price-level targeting in the light of current theoretical knowledge and past practical experience. We discuss progress in the economic debate on this issue, starting with the traditional arguments discussed in the early 1990s, moving to Svensson’s seminal paper in the late 1990s and ending with the most recent literature from the beginning of the new millennium. We devote special attention to the issues of the zero interest rate bound, time consistency and communication. Practical experience from Sweden in the 1930s and Czechoslovakia in the first few years after WWI is used to illustrate the advantages and disadvantages of price-level targeting. Finally, the similarities of price-level and inflation developments with hypothetical outcomes under price-level targeting are investigated in selected inflation-targeting countries.Communication, deflation, price-level targeting, time inconsistency, zero bound.