Prague Economic Papers 2010, 19(2):99-117 | DOI: 10.18267/j.pep.366

The Problem of the Yearly Inflation Rate and Its Implications for the Monetary Policy of the Czech National Bank

Josef Arlt, Milan Bašta
University of Economics Prague, Department of Statistics and Probability, Czech Republic (arlt@vse.cz, milan.basta@vse.cz).

The yearly inflation rate might not always be an appropriate measure of inflation, mainly due to the fact that it does not provide up-to-date information on the level of inflation. The harmonic analysis shows that the yearly inflation rate deforms and delays the information with respect to the monthly inflation rate and is thus delayed behind the true inflation at yearly levels. This conclusion can be extremely important in the forecasting of the inflation rate at yearly levels and in the process of economic decision making. The problem of the yearly inflation rate is illustrated on the example of the monetary policy of the Czech National Bank. The cointegration analysis revealed the presence of the long-run relationship of the repo rate, the yearly adjusted inflation rate and the euro area repo rate in the analyzed period.

Keywords: monetary policy, forecasting, inflation rate, harmonic analysis, linear filtration
JEL classification: C22, C52, E31, E43

Published: January 1, 2010  Show citation

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Arlt, J., & Bašta, M. (2010). The Problem of the Yearly Inflation Rate and Its Implications for the Monetary Policy of the Czech National Bank. Prague Economic Papers, 19(2), 99-117. doi: 10.18267/j.pep.366
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