Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Review of Economic Perspectives

Národohospodárský obzor; The Journal of Masaryk University

4 Issues per year

CiteScore 2016: 0.50

SCImago Journal Rank (SJR) 2016: 0.262
Source Normalized Impact per Paper (SNIP) 2016: 0.516

Open Access
See all formats and pricing
More options …
Volume 16, Issue 1


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

Miroslav Hloušek
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


  • BALL, L. (2013) The Case for four percent inflation, Central Bank Review Vol. 13, May 2013, pp.17-31Google Scholar

  • FRANTA, M., HOLUB, T., KRÁL, P., KUBICOVÁ, I., ŠMÍDKOVÁ, K. and VAŠÍČEK, B. (2014) Měnový kurz jako nástroj při nulových úrokových sazbách: případ ČR, Czech National Bank: Research and Policy Notes, No. 3.Google Scholar

  • COENEN, G., A. ORPHANIDES, and V. WIELAND. (2004). Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero. The B.E. Journal of Macroeconomics, vol. 4(1), Pages 1-25, February.Google Scholar

  • GUERRIERI, L., and M. IACOVIELLO (2015) “Occbin: A Toolkit to Solve Models with Occasionally Binding Constraints Easily,” Journal of Monetary Economics, March, vol. 70, pages 22-38. DOI: 10.1016/j.jmoneco.2014.08.005Web of ScienceCrossref

  • GUST Ch., LOPEZ-SALIDO. D. and M. E. SMITH, (2012). The empirical implications of the interest-rate lower bound, Finance and Economics Discussion Series 2012-83, Board of Governors of the Federal Reserve System (U.S.).Google Scholar

  • HLOUŠEK, M. (2014) Zero lower bound on interest rate: application of DSGE model on Czech economy. In Proceedings of 32nd International Conference Mathematical Methods in Economics. Olomouc: Palacký University, 2014. pp. 293-298.Google Scholar

  • KOLASA, M. (2009) Structural heterogeneity or asymmetric shocks? Poland and the euro area through the lens of a two-country DSGE model, Economic Modelling, Elsevier, vol. 26(6), pages 1245-1269. DOI: 10.1016/j.econmod.2009.06.001Web of ScienceCrossref

  • MALOVANÁ, S. (2015) Foreign Exchange Interventions at the Zero Lower Bound in the Czech Economy: A DSGE Approach. Charles University: IES FSV, IES Working Paper 13/2015.Google Scholar

  • SLANICAY, M. (2013) Business Cycle Synchronization through the Lens of a DSGE Model.” Czech Journal of Economics and Finance, Vol. 63, No. 2, pp. 180-196.Google Scholar

  • WILLIAMS, J. C. (2009) Heeding Daedalus: Optimal Inflation and the Zero Lower Bound, Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pp. 1-49. DOI: 10.1353/eca.0.0066Crossref

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, Volume 16, Issue 1, Pages 3–16, 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. BY-NC-ND 3.0

Supplementary Article Materials

Citing Articles

Here you can find all Crossref-listed publications in which this article is cited. If you would like to receive automatic email messages as soon as this article is cited in other publications, simply activate the “Citation Alert” on the top of this page.

Miroslav Hloušek
Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 2016, Volume 64, Number 2, Page 603

Comments (0)

Please log in or register to comment.
Log in