Ali Alichi, Jaromir Benes, Joshua Felman, Irene Feng, Charles Freedman, Douglas Laxton, Evan Tanner, David Vavra, and Hou Wang
INTERNATIONAL MONETARY FUND
The paper first describes how the Czech National Bank (CNB) moved gradually from a fixed exchange rate regime to the frontiers of Inflation-Forecast Targeting. It then focuses on the CNB's recent experience in adding the exchange rate as a complementary monetary policy tool to stimulate the economy and combat the risks of deflation when the policy interest rate is at the zero lower bound. It assesses the theoretical basis of such a policy, the communications approach used by the CNB when announcing the new framework, and the effects thus far on inflation and output.