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Responses to Monetary Policy Shocks in the East and the West of Europe: A Comparison

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  • Marek Jarocinski

    (Universitat Pompeu Fabra, Barcelona and CASE - Center for Social and Economic Research, Warsaw)

Abstract

This paper compares responses to monetary shocks in the EMU countries (in the pre-EMU sample) and in the New Member States (NMS) from Central Europe. The small-sample problem, especially acute for the NMS, is mitigated by using a Bayesian estimation procedure which combines information across countries. A novel identification scheme for small open economies is used. The estimated responses are quite similar across regions, but there is some evidence of more lagged, but ultimately stronger price responses in the NMS economies. This contradicts the common belief that monetary policy is less effective in post-transition economies, because of their lower financial development. NMS also have a probably lower sacrifice ratio, which is consistent with the predictions of both the imperfect information model of Lucas (1973) and the New-Keynesian model of Ball et al. (1988).

Suggested Citation

  • Marek Jarocinski, 2006. "Responses to Monetary Policy Shocks in the East and the West of Europe: A Comparison," Working Papers 124, Oesterreichische Nationalbank (Austrian Central Bank).
  • Handle: RePEc:onb:oenbwp:124
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    More about this item

    Keywords

    monetary policy transmission; Structural VAR; Bayesian estimation; exchangeable prior;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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