Did the Exchange Rate Floor Prevent Deflation in the Czech Republic?

Did the Exchange Rate Floor Prevent Deflation in the Czech Republic?
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Volume/Issue: Volume 2017 Issue 206
Publication date: September 2017
ISBN: 9781484319291
$20.00
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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Inflation , Money and Monetary Policy , WP , FX floor , Foreign exchange intervention , exchange rate , synthetic control method , inflation expectation , FX intervention , import price inflation , CNB FX operations , inflation-unemployment relationship , core inflation in the Czech Republic , Inflation , Exchange rates , Inflation targeting , Global

Also of interest
November 2009 Working Papers
August 2009 Working Papers
September 2009 Working Papers
October 2009 Working Papers
Summary

To fight deflationary pressures at the zero lower bound, in November 2013, the Czech National Bank (CNB) introduced a one-sided floor on the exchange rate, as an additional monetary policy instrument. This paper investigates the impact of the FX floor on inflation in the Czech Republic, by comparing actual inflation with counterfactuals in the absence of the exchange rate floor. Three different empirical strategies are implemented: an event study, difference-in-difference regressions and a synthetic control method. The empirical results provide evidence that the exchange rate floor was effective in fighting deflationary pressures and prevented inflation from going into negative territory. The magnitude of the effect ranges between 0.5 to 1.5 percentage points. The results are robust to different econometric specifications.

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