ABOUT BOOK

This article tests the expenditure-switching model in the Czech Republic to inspect the causal link between the Producer Price Index (P.P.I.) and Consumer Price Index (C.P.I.). The results of the co-movement between the P.P.I. and C.P.I. in the period indicate a positive relationship across the chosen period. We notice that in the frequency domain, the two variables have a relationship in higher spectrums (short-term). The results also show that comovements exist during structural reforms and financial crises, which in turn supports the expenditure-switching model. The C.P.I. and P.P.I. are sensitive to variations in exchange rates, which pass through prices at the domestic level. Exchange rate shocks lead to inflationary pressure; therefore, long-term oriented intervention policies of the central banks will be more efficient. This article provides substantial information to exporters about price adjustments to exchange rate fluctuation