This paper examines the effects of inflation and associated financial instability on income distribution. Looking at disaggregate measures of income distribution, the issue as to whether inflation is a progressive or a regressive tax is found to be negatively correlated with the level of development and the sophistication of the financial structure. Since koruna turbulence in 1997, there has been considerable dialogue concerning suitable strategy for the Czech monetary policy. This paper provides a model framework for such discussion. Three alternative monetary strategies are approximated by different policy rules.
Major shocks come from external prices and price corrections.
Similarly, policy rules mirror strategies of monetary policy that are relevant to the Czech experience. For example, the standard inflation-targeting rule is modified by an imported equilibrium interest rate. Alternative definitions of aggressiveness regarding the exchange-rate rule correspond to changes in the width of the band. Model simulations can be used for a comparison of the efficiency of monetary rules in ensuring convergence to low inflation and their costs in terms of output, interest rates, and trade balance volatility. The first seminar, Financial Indicators and the Czech Economy, attracted papers aimed at both presenting the theory and testing the explanatory power of financial indicators performance in the Czech eco nomy.