Prague Economic Papers 2004, 13(2):121-141 | DOI: 10.18267/j.pep.235

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

Tibor Hlédik
Czech National Bank, Na Pøíkopì 28, CZ - 115 03 Prague 1 (e-mail: Tibor.Hledik@cnb.cz).

This paper uses a small-scale dynamic rational expectations model based on an openeconomy version of Fuhrer-Moore-type staggered wage setting to quantify the secondround 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: monetary policy, inflation targeting, optimal policy rules
JEL classification: E31, E52, F41

Published: January 1, 2004  Show citation

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Hlédik, T. (2004). Quantifying the Second-Round Effects of Supply-Side Shocks on Inflation. Prague Economic Papers, 13(2), 121-141. doi: 10.18267/j.pep.235
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