The czech experience with inflation targeting in transition

Abstract

This paper argues that inflation targeting is a strategy that can be under certain conditions adopted by central banks in countries in transition even though their typical goal is to disinflate instead of stabilising low inflation. On the one hand, according to the Czech experience, inflation targeting offers several benefits, such as increasing control over expectations and short-term flexibility of monetary strategy, that are attractive for economy in transition. On the other hand, constraints imposed by period of transition as well as by openness of economy are present no matter which monetary strategy is chosen by the central bank. Implied costs should not be attributed to a particular monetary strategy. Inflation targeting has made various factors constraining monetary policy more visible and, as a result, requirements on the quality of decisions as well as on communication strategy have increased.