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Review of Economic Perspectives

Národohospodárský obzor; The Journal of Masaryk University

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SCImago Journal Rank (SJR) 2015: 0.143
Source Normalized Impact per Paper (SNIP) 2015: 0.273
Impact per Publication (IPP) 2015: 0.121

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Volume 16, Issue 1 (Mar 2016)


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

Miroslav Hloušek
  • Department of Economics, Faculty of Economics and Administration, Masaryk University, Brno, Czech Republic.
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Published Online: 2016-03-17 | DOI: https://doi.org/10.1515/revecp-2016-0001


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 lower volatility or in terms of higher average values.

This article offers supplementary material which is provided at the end of the article.

Keywords: zero lower bound on interest rate; inflation target; DSGE model

JEL Classification:: E37


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About the article

Received: 2015-04-02

Accepted: 2015-06-23

Published Online: 2016-03-17

Published in Print: 2016-03-01

Citation Information: Review of Economic Perspectives, ISSN (Online) 1804-1663, DOI: https://doi.org/10.1515/revecp-2016-0001. Export Citation

© 2016 Miroslav Hloušek, published by De Gruyter Open. This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License. (CC BY-NC-ND 3.0)

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