Inflation Target and its Impact on Macroeconomy in the Zero Lower Bound Environment: the case of the Czech economy

HLOUŠEK, Miroslav. Inflation Target and its Impact on Macroeconomy in the Zero Lower Bound Environment: the case of the Czech economy. Národohospodářský obzor – Review of Economic Perspectives. Brno: Masaryk University, 2016, vol. 16, No 1, p. 3-16. ISSN 1213-2446. Available from: https://dx.doi.org/10.1515/revecp-2016-0001.

Basic information

• Original name: Inflation Target and its Impact on Macroeconomy in the Zero Lower Bound Environment: the case of the Czech economy
• Authors: HLOUŠEK, Miroslav (203 Czech Republic, guarantor, belonging to the institution).
• Edition: Národohospodářský obzor – Review of Economic Perspectives, Brno, Masaryk University, 2016, 1213-2446.

Other information

• Original language: English
• Type of outcome: Article in a journal
• Field of Study: 50200 5.2 Economics and Business
• Country of publisher: Czech Republic
• Confidentiality degree: is not subject to a state or trade secret
• WWW: URL
• RIV identification code: RIV/00216224:14560/16:00089654
• Organization unit: Faculty of Economics and Administration
• Doi: http://dx.doi.org/10.1515/revecp-2016-0001
• UT WoS: 000406944500001
• Keywords in English: zero lower bound on interest rate; inflation target; DSGE model
• Tags: Reviewed

Abstract

This paper uses a stochastic simulation of a DSGE model of the Czech economy to study the macroeconomic consequences of inflation target setting when interest rates are constrained by the zero lower bound. The distortions of this constraint depend non-linearly on the inflation target. For an inflation target of two percent the costs are negligible, but they increase steeply with lower target values. The largest impact is on the average values of output, consumption and investment; inflation is only slightly influenced. The volatility of all the variables considered increases significantly, but only for inflation targets that are close to zero. An inflation target of four percent does not bring additional benefits either in terms of low-er volatility or in terms of higher average values.

Links

• MUNI/A/1049/2015, interní kód MU: Name: Makroekonomická analýza chování ekonomiky a hospodářské politiky pomocí kvantitativních metod

Investor: Masaryk University, Category A