Skip to main content
SpringerLink
Log in

Is Monetary Policy Really Forward-Looking? The Case of the Czech Republic, Poland and Hungary

  • Chapter
  • First Online:
Finance in Central and Southeastern Europe

Part of the book series: Contributions to Economics ((CE))

  • 332 Accesses

Abstract

The following chapter presents the cross-country comparison of central banks’ decision-making premises. A simple index of forward-lookingness (FL) is created and applied for the Czech Republic, Poland and Hungary. This index verifies whether the central banks consider their own inflation forecast and inflation expectations while making decisions on the interest rates. The way how the modern central banks understand transmission mechanism justifies a search for an assessment of their forward-lookingness. Once it is possible to compare the FL of the central bankers, the conclusion on the relationships of their results and FL or the FL of the central banker and expectations of economic agents can be drawn. The additional goal of this chapter is to assess the central bank’s decision compatibility with its own inflation forecasts. Inflation forecasts, consistently used by the central banks, may support the stabilization of inflation expectations exhibited by economic agents. The results for three countries covered by the examination show the highest FL of the Czech National Bank which outperforms the National Bank of Hungary and the National Bank of Poland in both: FL and decision consistence with the macroeconomic forecast.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
eBook
USD 16.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    Main stream economic theory imposes the point of view of this chapter. Regardless of some critics of its assumptions and findings, it still gives a sound and consistent background for analytical models of the central banks all around the world. None of heterodox schools of economics have offered acceptable alternative up to know.

  2. 2.

    The horizon depends on the way in which the expectations are examined. 12Y horizon refers to survey-based expectations among consumers. In the case of business and specialists expectations, longer horizons as well as alternative ways of measurement are applied.

  3. 3.

    The assessment of decision compatibility with the forecast was developed on the basis of inflation forecast targeting index (Szyszko 2017b).

  4. 4.

    As the forecast frequency is lower than the MPC meetings, decision round here means one forecast and each monetary policy meeting that occur to the next forecast publication. It means that one forecast may be discussed during 2–4 MPC meetings.

  5. 5.

    According to the methodology presented at (Eijffinger and Geraats 2006), at the beginning of 2011 NBP transparency accounted for 12.5, CNB—12 and NBH—11.5. Five years later it was 13 for Poland, 14 for Czechia and 13.5 for Hungary.

  6. 6.

    Actually, prior to the latest economic crisis most of the central banks implemented flexible inflation targeting as well. Nowadays the central banks explain it more explicitly. Moreover, main focus on growth is justified with low inflation figures.

References

  • Bajalan S, Raei R, Tehrani R (2012) Development of an index for measuring the Central Bank’s transparency. Arguemnta Oeconomica 1(28):14–40

    Google Scholar 

  • Bernanke B et al (2001) Inflation targeting: lessons from the international experience. Princeton University Press, Princeton

    Google Scholar 

  • Bini Smaghi L, Gros D (2001) Is the ECB sufficiently accountable and transparent?. European network of economic policy research institutes working paper, No. 7

    Google Scholar 

  • Brzoza-Brzezina M, Kot A (2008) The relativity theory revised: is publishing interest rates forecast really so valuable? National Bank of Poland working papers, No. 052

    Google Scholar 

  • Brzoza-Brzezina M, Kotłowski J, Miśkowiec A (2013) How forward-looking are Central banks? Some evidence from their forecasts. Appl Econ Lett 20(2):142–146. doi:10.1080/13504851.2012.684780

    Article  Google Scholar 

  • Bullard J, Mitra K (2002) Learning about monetary policy rules. Federal Reserve Bank of St. Louis working papers, no. 2000-001E

    Google Scholar 

  • Calvo GA (1983) Staggered prices in utility-maximizing frameworks. J Monet Econ 12:383–398

    Article  Google Scholar 

  • Carlson JA, Parkin JM (1975) Inflation expectations. Economica 42:123–138

    Article  Google Scholar 

  • Carroll CD (2003) Macroeconomic expectations of households and professional forecasters. Q J Econ 118(1):269–298

    Article  Google Scholar 

  • Coibion O, Gorodnichenko Y (2015) Is the Phillips curve alive after all? Inflation expectations and the missing disinflation. Am Econ J Macroecon 7:197–232

    Article  Google Scholar 

  • Dias F, Duarte C, Rua A (2010) Inflation expectations in the Euro area: are the consumers rational? Rev World Econ 146(3):591–607

    Article  Google Scholar 

  • Eijffinger SCW, Geraats PM (2006) How transparent are Central banks. Eur J Polit Econ 22:1–21. doi:10.1016/j.ejpoleco.2005.09.013

    Article  Google Scholar 

  • Evans GW, Honkapohja S (2001) Learning and expectations in macroeconomics. Princeton University Press, Princeton

    Book  Google Scholar 

  • Forsells M, Kenny G (2004) The rationality of consumers’ inflation expectations: survey-based evidence for the euro area. J Bus Cycle Meas Anal 1(1):13–42

    Google Scholar 

  • Fry M et al (2000) Key issues in the choice of a monetary policy framework. In: Mahadeva L, Sterne G (eds) Monetary policy frameworks in a global context. Routledge, London, pp 1–16

    Google Scholar 

  • Galí J (2008) Monetary policy, inflation, and the business cycle, an introduction to the new Keynesian framework. Princeton University Press, Princeton

    Google Scholar 

  • Goodfriend M (2007) How the world achieved the consensus on monetary policy. J Econ Perspect 21(4):47–68. doi:10.1257/jep.21.4.47

    Article  Google Scholar 

  • Kahn G (2007) Communicating a policy path: the next frontier in Central Bank transparency? Federal Reserve Bank of Kansas City, Economic Review Q1:25–51

    Google Scholar 

  • Łyziak T (2003) Consumer inflation expectations in Poland. European Central Bank Working Paper Series, Working Paper, No. 287

    Google Scholar 

  • Milani F (2011) Expectation shocks and learning as drivers of the business cycle. Econ J 121(552):379–401. doi:10.1111/j.1468-0297.2011.02422.x

    Article  Google Scholar 

  • Mishkin FS (2007) Monetary policy strategy. The MIT Press, Cambridge, MA

    Google Scholar 

  • Mitchell J, Weale M (2007) The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey. Discussion Paper Series 1: Economic Studies, No. 19

    Google Scholar 

  • Muth JF (1961) Rational expectations and the theory of price movements. Econometrica 29(3):315–335

    Article  Google Scholar 

  • Orphanides A, Williams J (2004) Imperfect knowledge, inflation expectations and monetary policy. In: Bernanke B, Woodford M (eds) The inflation-targeting debate. University of Chicago Press, Chicago

    Google Scholar 

  • Pesaran MH, Weale M (2006) Survey expectations. In: Elliott G, Granger CWJ, Timmermann A (eds) Handbook of economic forecasting, vol 1. Elsevier, Amsterdam, Holland

    Google Scholar 

  • Pfajfar D, Santoro E (2010) News on inflation and the epidemiology of inflation expectations. J Money Credit Bank 45(6):424–444. doi:10.1016/j.jebo.2010.05.012

    Google Scholar 

  • Reis R (2006a) Inattentive consumers. J Monet Econ 53(8):1761–1800

    Article  Google Scholar 

  • Reis R (2006b) Inattentive producers. Rev Econ Stud 73(3):793–821. doi:10.1111/j.1467-937X.2006.00396.x

    Article  Google Scholar 

  • Skořepa M, Kotlán V (2003) Assessing future inflation in inflation targeting: forecasts or simulations. In: Monetary Policy in Changing Environment, Bank for International Settlements Paper no. 19

    Google Scholar 

  • Svensson LEO (1997) Inflation forecast targeting: implementing and monitoring inflation targets. Eur Econ Rev 41:1111–1146. doi:10.1016/S0014-2921(96)00055-4

    Article  Google Scholar 

  • Szyszko M (2011) The interdependences of central bank’s forecasts and economic agents inflation expectations. Empirical study, National Bank of Poland Working Papers, No. 105

    Google Scholar 

  • Szyszko M (2015) Inflation forecast versus shaping inflation expectations. Comparative analysis. Comparative Economic Research, Central and Eastern Europe 18(4):139–156. doi:10.1515/cer-2015-0033

    Google Scholar 

  • Szyszko M (2017a) Central bank’s inflation forecast and expectations. A comparative analysis. Prague Economic Papers 26(3): 286–299. doi: 10.18267/j.pep.614

  • Szyszko M (2017b) Measurement of inflation forecast targeting. A proposal of methodological solution. E + M Economics and Management, in press

    Google Scholar 

  • Woodford M (2003) Interest and prices. Foundations of theory of monetary policy. Princeton University Press, Princeton

    Google Scholar 

  • Woodford M (2012) The case for forecast targeting as a monetary policy strategy. In: Koening EF, Leeson R, Kahn GA (eds) The Taylor Rule and the transformation of monetary policy. Hoover Institution Press, Stanford University, Stanford

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. WSB University in Poznań, ul. Powstańców Wielkopolskich 5, 61-895, Poznań, Poland

    Magdalena Szyszko

Authors
  1. Magdalena Szyszko
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Magdalena Szyszko .

Editor information

Editors and Affiliations

  1. Faculty of Economics, University of Split , Split, Croatia

    Srećko Goić

  2. Eastern Macedonia and Thrace Institute of Technology, Kavala, Greece

    Anastasios Karasavvoglou

  3. Department of Accounting and Finance, Central Macedonia Institute of Technology, Serres, Greece

    Persefoni Polychronidou

Rights and permissions

Reprints and permissions

Copyright information

© 2017 Springer International Publishing AG

About this chapter

Cite this chapter

Szyszko, M. (2017). Is Monetary Policy Really Forward-Looking? The Case of the Czech Republic, Poland and Hungary. In: Goić, S., Karasavvoglou, A., Polychronidou, P. (eds) Finance in Central and Southeastern Europe. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-64662-6_1

Download citation

Publish with us

Policies and ethics

Search

Navigation