Stabilization Policy and Price Development after Price Liberalization in the CSFR and the CR (1991–1998)

This bachelor thesis analyzes the development of inflation and evaluates the role of stabilization policy in Czechoslovakia and subsequently in the independent Czech Repub-lic between 1991 and 1998. The primary objective of the thesis is to assess the effective-ness of the nominal anchor system—specifically the fixed exchange rate, wage regulation, and restrictive monetary policy—in stabilizing the price level following its liberalization. The thesis tests the hypothesis that this stabilization strategy successfully contributed to the mitigation of secondary inflationary pressures. In this context, the research questions address the nature of price development immediately after liberalization, the role of stabili-zation instruments during the first phase of transition, the factors leading to the weakening of this strategy in the mid-1990s, and the causes of the forced abandonment of the fixed exchange rate regime in 1997. The theoretical part defines the key specifics of inflation within the transition process and details the concepts of nominal anchors as tools for an-choring inflationary expectations. The practical part is chronologically divided into two stages: the period of initial shock and anchoring (1991–1993) and the period of accumula-ting imbalances leading to the monetary crisis (1994–1998). The analysis relies on quanti-tative data from the Czech National Bank and the Czech Statistical Office, focusing par-ticularly on the relationship between wage dynamics and labor productivity, as well as the impact of foreign capital inflows. The conclusions of the thesis confirm the stated hypo-thesis for the first phase of the transformation, during which the chosen system of an-chors successfully prevented a hyperinflationary spiral and allowed for the absorption of the initial price shock. However, for the second observed period, the hypothesis is only partially confirmed. It is demonstrated that the effectiveness of stabilization instruments was fundamentally undermined over time by wage expansion and the sterilization difficul-ties of the central bank, which resulted in the unsustainability of the fixed exchange rate and the subsequent transition to an inflation targeting regime. The contribution of the the-sis lies in providing a comprehensive perspective on the limits of nominal anchoring in the dynamic environment of a transition economy and identifying the causes of the stabilizati-on strategy's failure in the context of internal and external imbalances.