Frontiers of Monetary Policymaking: Adding the Exchange Rate as a Tool to Combat Deflationary Risks in the Czech Republic

By Ali Alichi, Jaromir Benes, Joshua Felman, Irene Feng, Charles Freedman, Douglas Laxton, Evan C Tanner, David Vávra, Hou Wang

April 1, 2015

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Ali Alichi, Jaromir Benes, Joshua Felman, Irene Feng, Charles Freedman, Douglas Laxton, Evan C Tanner, David Vávra, and Hou Wang. Frontiers of Monetary Policymaking: Adding the Exchange Rate as a Tool to Combat Deflationary Risks in the Czech Republic, (USA: International Monetary Fund, 2015) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper first describes how the Czech National Bank (CNB) moved gradually from a fixed exchange rate regime to the frontiers of Inflation-Forecast Targeting. It then focuses on the CNB’s recent experience in adding the exchange rate as a complementary monetary policy tool to stimulate the economy and combat the risks of deflation when the policy interest rate is at the zero lower bound. It assesses the theoretical basis of such a policy, the communications approach used by the CNB when announcing the new framework, and the effects thus far on inflation and output.

Subject: Banking, Central bank policy rate, Exchange rate policy, Exchange rates, Financial services, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Prices

Keywords: Central bank, Central bank communications, Central bank policy rate, CNB policymaker, CNB staff, Commitment of the CNB, Deflation, Exchange rate policy, Exchange rate tool, Exchange rates, Forward guidance, Forward-looking policymaking framework, Global, Inflation, Inflation Targeting, Inflation-Forecast Targeting, Interest rate, Interest rate path, Transmission mechanism, WP, Zero lower bound

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/074
Stock No:

WPIEA2015074
ISBN:

9781475532371
ISSN:

1018-5941

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