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

Ali Alichi, Jaromir Benes, Joshua Felman, Irene Feng, Charles Freedman, Douglas Laxton, Evan Tanner (), David Vavra and Hou Wang

No 2015/074, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; interest rate; central bank; CNB policymaker; commitment of the CNB; transmission mechanism; Inflation-Forecast Targeting; Inflation Targeting; exchange rate tool; zero lower bound; forward guidance; deflation; central bank communications; interest rate path; CNB staff; forward-looking policymaking framework; Exchange rates; Inflation; Central bank policy rate; Exchange rate policy; Global (search for similar items in EconPapers)
Pages: 44
Date: 2015-04-01
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Citations: View citations in EconPapers (17)

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