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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.

Economic development. --- International Monetary Fund. --- Finance --- Business & Economics --- Money --- Banks and Banking --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Monetary Policy --- Central Banks and Their Policies --- Price Level --- Deflation --- Interest Rates: Determination, Term Structure, and Effects --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Currency --- Foreign exchange --- Banking --- Macroeconomics --- Monetary economics --- Exchange rates --- Central bank policy rate --- Inflation targeting --- Prices --- Financial services --- Monetary policy --- Exchange rate policy --- Interest rates --- Banks and banking --- Czech Republic