Certain Specific Features of Monetary Policy in the Czech Republic

Abstract

This article is concerned with selected, mutually dependent problems of monetary policy that demonstrate the specific position of the Czech economy, that is to say, an economy that is undergoing transformation. The first part is concerned with the effect of a stable exchange rate as a nominal anchor for an economy in transition, one that is undergoing notable changes in price relations. In the Czech Republic, where currency was not convertible for capital transactions (rate of exchange was undervalued due to purchasingpower parity), the anchoring role of the exchange rate was utilized by means of other mechanisms than are used in market economies with a completely convertible exchange rate. This, in turn, has implications for further steps toward the convertibility of the capital account in the balance of payments. The second part of this article discusses the problem of indebtedness among different enterprises and stemming from that their inability to pay. This phenomenon is interpreted as a definite specific pathological financial innovation typical for the initial stage of transformation in the Czech Republic and in other countries; the consequences of this phenomenon for monetary policy are discussed, particularly as they affect inflation.