Transition to the Strategy of Inflation Targeting

Abstract

The Czech National Bank entered 1998 with a new strategy regarding monetary policy based on inflation targeting, thus joining the growing number of central banks whose monetary policy concentrates directly on achieving and maintaining a lower inflation level, that is, without using an explicit intermediate goal. The newly announced strategy has generated interest in the professional as well as the daily press. The timeliness of this subject is reflected in the fact that an entire issue of the journal Finance a uver was devoted to inflation targeting. In this article we focus on five areas that we consider important regarding the transition to inflation targeting. The starting point for the new strategy is explained in the first section of this article. For an ongoing discussion about the orientation of monetary policy, it is obviously important to stress the difference between the benefits of inflation targeting and possible short-run impacts related to the specific short-run inflation target. Inflation targeting stems from a general consensus regard