Politická ekonomie
Politická ekonomie
Prague Economic Papers
University of Economics, Prague

Prague Economic Papers Vol. 13 No. 2

Quantifying the Second-Round Effects of Supply-Side Shocks on Inflation

DOI: https://doi.org/10.18267/j.pep.235

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Tibor Hlédik

This paper uses a small-scale dynamic rational expectations model based on an open-economy version of Fuhrer-Moore-type staggered wage setting to quantify the second-round effects of selected supply-side shocks and of shocks to the nominal exchange rate on wages and subsequently on inflation. In order to analyse the desired reaction of the central bank to these shocks, optimal time-consistent policy rules are derived within the presented New-Keynesian framework. The conclusions presented in the paper suggest that the second-round effects of shocks to import prices and the nominal exchange rate on inflation should not be ignored in practical policy-making.

Keywords: inflation targeting, monetary policy, optimal policy rules

JEL Classification: E31, E52, F41

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