Experience Of Inflation Targeting In The Czech Republic

The paper analyzes inflation targeting of the Czech National Bank (“CNB”) in the context of monetary regimes and of the definition of “targeting method”. It first discusses the legal authorisation of the Czech central bank, its early monetary policy in the 1990s, and the circumstances leading to the introduction of inflation targeting. In December 1997, the Bank Board of the CNB decided to change its monetary policy regime, and in January 1998 it switched to inflation targeting. At that time the CNB’s inflation target was set in terms of so-called net inflation, but since 2002 it has been set in terms of inflation expressed as a change in the consumer price index. In addition to standard instruments, the CNB used foreign exchange interventions from November 2013 to April 2017 to devalue the Czech currency in an effort to increase the price level and thus achieve the inflation target, although practical experience with the use of the exchange rate as an instrument of unconventional monetary policy were limited. This paper analyzes inflation targeting and examines how successful this monetary policy strategy has been.