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The Effect Of Exchange Rate Arrangements On Transmission Of Interest Rates And Monetary Policy Independence: Evidence From A Group Of New Eu Member Countries "

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Author Info

  • Bogdan Căpraru

    ()
    (Faculty of Economics and Business Administration, "Al. I. Cuza" University, Iasi, Romania)

  • Iulian Ihnatov

    ()
    (Faculty of Economics and Business Administration, "Al. I. Cuza" University, Iasi, Romania)

Abstract

The main objective of this paper is to investigate whether empirical support for the monetary independence hypothesis can be found from eight EU new member countries. Thus, we will analyze which are the consequences of the euro interest rate movements over the interest rates in selected EU new members outside euro zone, in a framework of different exchange rate regimes. We employ 2SLS cross-section fixed-effects estimation on a panel of countries, with a Newey-West estimator, robust against heteroscedasticity and autocorrelation. We find that interest rates in non-Euro area EU members with floating exchange rate arrangements are found to react considerably more to ECB’s interest rate shocks than do interest rates in those that have fixed or intermediate exchange rate regimes. The evidence suggest that countries with floating exchange rate arrangements are less independent than the fixed and intermediate exchange rate countries and, furthermore, intermediate arrangements help to preserve better the monetary policy autonomy. "

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Bibliographic Info

Article provided by Alexandru Ioan Cuza University, Faculty of Economics and Business Administration in its journal Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi.

Volume (Year): 58 (2011)
Issue (Month): (november)
Pages: 71-81

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Handle: RePEc:aic:journl:y:2011:v:57:p:71-81

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Postal: Universitatea Al. I. Cuza; B-dul Carol I nr. 22; Iasi
Phone: 004 0232 201070
Fax: 004 0232 217000
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Web page: http://anale.feaa.uaic.ro/anale/
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Related research

Keywords: exchange rate regime; monetary policy independence hypothesis; interest rate; European integration; European Central Bank";

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References

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  1. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
  2. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  4. Flood, Robert P & Rose, Andrew K, 1993. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," CEPR Discussion Papers 838, C.E.P.R. Discussion Papers.
  5. Jeffrey A. Frankel & Sergio L. Schmukler & Luis Serven, 2002. "Global Transmission of Interest Rates: Monetary Independence and Currency Regime," NBER Working Papers 8828, National Bureau of Economic Research, Inc.
  6. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2005. "The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 423-438, August.
  7. Paul De Grauwe & Gunther Schnabl, 2004. "Exchange Rate Regimes and Macroeconomic Stability in Central and Eastern Europe," International Finance 0404011, EconWPA.
  8. Crespo Cuaresma, Jesus & Wojcik, Cezary, 2006. "Measuring monetary independence: Evidence from a group of new EU member countries," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 24-43, March.
  9. John C. Bluedorn & Christopher Bowdler, 2010. "The Empirics of International Monetary Transmission: Identification and the Impossible Trinity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(4), pages 679-713, 06.
  10. Kim, Ki-ho, 2003. "Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model," Review of Financial Economics, Elsevier, vol. 12(3), pages 301-313.
  11. Zsolt Darvas & György Szapáry, 1999. "Financial Contagion under Different Exchange Rate Regimes," MNB Working Papers 1999/10, Magyar Nemzeti Bank (the central bank of Hungary).
  12. Jacques Miniane & John H. Rogers, 2007. "Capital Controls and the International Transmission of U.S. Money Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1003-1035, 08.
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  14. Klein, Michael W. & Shambaugh, Jay C., 2012. "Exchange Rate Regimes in the Modern Era," MIT Press Books, The MIT Press, edition 1, volume 1, number 026251799x, December.
  15. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
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Cited by:
  1. Yu Hsing, 2013. "Testing The Trilemma Hypothesis And Measuring Their Effects On Inflation, Growth And Volatility For Poland," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 9(3), pages 57-64.
  2. Yu HSING, 2012. "Effects of the Trilemma Policies on Inflation, Growth and Volatility in Bulgaria," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(569)), pages 49-58, April.

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