The effectiveness of the CNB's monetary policy in response to the 2022 inflation crisis

In 2022, an inflation crisis occurred in the Czech Republic, the causes of which are described in this thesis. It identifies the following causes: the coronavirus pandemic, loose fiscal policy, expansionary monetary policy, the war in Ukraine, and energy prices. The CNB responded to inflation by raising interest rates, tightening mortgage limits, and intervening in foreign exchange to increase the value of the Czech crown, which is in accordance with current economic theories. This thesis seeks to answer the question of whether the CNB's monetary policy has been effective in fighting inflation. Two hypotheses were assessed using an econometric VAR model. The first hypothesis, which is: "Selling foreign exchange reserves leads to a lower inflation rate through a stronger Czech crown", was partially accepted – according to the model, foreign exchange interventions lead to a stronger currency, but the effect of a strong Czech crown is ambiguous. The second hypothesis, which is: “An increase in interest rates leads to a decrease in the inflation rate”, was accepted completely. Thus, the model confirmed the effectiveness of higher interest rates in reducing the inflation rate. Therefore, according to the conclusions of the paper, the actions of the CNB have proven to be effective, which corresponds to the fact that the inflation rate has been falling steadily since January 2023.