A comment on inflation in the Czech Republic

The massive inflow of foreign capital as a result of the Czech government;s fixed-exchange rate policy could have been slowed down. The government and the central banl have made a mistake by committing to a fixed nominal exchange rate. The adoption of a wide exchange rate band to correct the problem of short-term capital inflows was also far too late. In addition, the government responded weakly to the deterioration in the current account position which was partly caused by the appreciation of the real effective exchange rate of the koruna.