Energy constitutes an essential share of costs across any economy. The percentage of electricity in the overall energy consumption is steadily increasing. This increase, however, is not reflected correctly in the consumption basket relevant for measuring inflation and, therefore, for monetary policy formulation. We argue that the energy mix reflected in inflation should be revised in favour of electricity. We present an analysis of inflationary pressures across Europe and decompose the impact of energy categories on headline inflation. Building on the inflation expectations framework, this study examines the characteristics and magnitude of the current energy price dynamics and quantifies its share in the countries’ effective inflation. Our research also confirms a compelling insight into the country’s energy structure and inflationary pressures when a larger share of renewable electricity sources proves to be associated with lower inflation. Finally, we argue that the energy price shock cannot be viewed as a one-shot event as in the case of oil price shocks in the past. We draw recommendations for monetary policy formulation. The implication of renewable sources on inflation should be of interest to policymakers, especially in times of high, almost galloping inflation rates in some European countries, unstable fossil energy sources supply due to geopolitical instability, and climate crisis.
The latest global crisis, which fully erupted in 2008, can have a significant impact on central banks credibility in the long run. During the last crisis, monetary authorities encountered zero interest rate levels and, as a result, started to use non-standard monetary policy instruments. The Czech National Bank decided to use a less standard instrument in November 2013, when it started to intervene on the foreign exchange market in order to keep the Czech currency at level 27 CZK / EUR. However, the European Central Bank also adopted a non-standard instrument, when chose a path of quantitative easing in 2015 in order to support the euro area economy by purchasing financial assets. The question remains whether the approach of Czech National Bank or the approach of European Central Bank in the crisis and post-crisis period was a more appropriate alternative. With the passage of time from the global financial crisis, it is already possible to compare the approaches of these two central banks and at least partially assess what approach was more appropriate under the given conditions. When comparing the central banks approaches to the crisis, the Czech National Bank was better, both in terms of the rate of interest rate cuts and the resulting inflation with regard to the choice of a non-standard monetary policy instrument. The recent financial crisis has revealed the application of moral hazard in practice, both on behalf of the European Central Bank and the Czech National Bank, which may have a significant impact on their credibility and independence in the coming years.
During the last crisis monetary authorities hit zero interest rates and as a result they began to use less standard instruments. However, they failed to meet the declared inflation target for a long time. The Czech National Bank (CNB) decided to use the unconventional instrument in November 2013 when the exchange rate commitment was introduced. The aim of the paper is to evaluate the decision to use the exchange rate commitment with regard to its potential side effects. The most significant side effect is the enormous amount of foreign exchange reserves, which, due to the appreciation of the domestic currency, can get the CNB into more cumulative negative values than it already is.
The aim of the paper is to verify whether the CNB behaved symmetrically in the period of 1998-2016 while fulfilling its basic mandate -price stability -and whether the decision to use the exchange rate commitment influenced the assessment of its symmetrical approach. The paper provides a comprehensive view of the CNB's symmetry, which is considered as the basis for the credibility of central bank behaviour in achieving the main objective -price stability. Based on analyses of deviations of inflation from the target in both directions and assess the implemented exceptions, it was shown that the CNB was stricter than was necessary from the point of view of resulting inflation over the period under review. In most of the years, it was below the inflation target which can be judged as an asymmetric approach in monetary policy decisions. The decision to apply the exchange rate commitment has had an impact on the CNB's symmetric approach. From the point of view of mere symmetry, the introduction of the exchange rate commitment was a positive step.
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