Czech disinflation and gross domestic product

The first part of the paper characterizes the main features of the czech macroeconomic development in the time period 1995:I - 1999:III. Cross-correlograms of net inflation, adjusted inflation and producer price index on the one side and explanatory variables: wage gap, broad money, nominal rate of exchange and index of world prices of raw materials and foodstaffs on the other side show the correlations with different time lags.
In the second part the dynamic model for an open economy with government sector has been constructed and several simulation exercises imitating Czech macroeconomic development have been made. The role of the slope of the short term Phillips curve (3 different coefficients) and that of expectations formation including direct inflation targeting has been analysed. The impact of favourable supply shocks and the response of extinguishing, neutral and accommodating aggregate demand policies has concluded the paper.

Keywords: adjustment path, Czech macroeconomic development, direct inflation targeting, favourable supply shocks