Measurements of inflation expectations at the Czech financial market

This paper concerns the measurement of inflation expectations in the Czech Republic. Unlike developed markets, which include government-indexed bonds, the Czech financial market does not have any standard instruments. Further more, the total liquidity of bond market is relatively low. Given these pro blems, the authors concentrate on two main methods that give a rough pictur e of expected inflation for particular segments of the financial market. Th e first method is based on analysis of real interest rates; the second anal yzes the yield curve spread (PRIBOR). It follows that inflation expectation s are strongly adaptive. At present, the future level of inflation can not be predicted using the yield curve spread, as inflation expectations are ma inly influenced by actual inflation development. Due to the special properties of the available data (emerging market, short time series), these two methods are only supplementary in the overall mone tary policy. Concurrently with the analyses described in this paper, the Cz ech National Bank prepared a questionnaire of selected participants in the financial market concerning their inflation expectations.