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Risk Premium Shocks, Monetary Policy And Exchange Rate Pass-Through In The Czech Republic, Hungary And Poland

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  • BALÁZS VONNÁK

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Abstract

This paper investigates the role of monetary policyin a small open economy, where exchange rateshocks are important. VAR models are estimatedfor the Czech Republic, Hungary and Poland. Contemporaneousand sign restrictions are imposedin order to identify the effect of monetary policyand risk premium shocks. Estimates from the samemodel for Canada, Sweden and the UK are used asa benchmark for developed economies with low inflation.The results suggest that the typical size ofa risk premium shock renders it almost impossiblefor the interest rate policy to smooth the exchangerate with the aim of minimizing inflationary consequences.On the other hand, low inflation may decreasethe exchange rate pass-through, which helpsthe monetary policy ignore exchange rate shocks.

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Bibliographic Info

Article provided by BANCO DE LA REPÚBLICA - ESPE in its journal ENSAYOS SOBRE POLÍTICA ECONÓMICA.

Volume (Year): (2010)
Issue (Month): ()
Pages:

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Handle: RePEc:col:000107:008326

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Keywords: monetary policy; risk premium shocks; exchange rate pass-through; structural VAR; signrestriction.;

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References

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  1. Darvas, Zsolt, 2001. "Exchange rate pass-through and real exchange rate in EU candidate countries," Discussion Paper Series 1: Economic Studies 2001,10, Deutsche Bundesbank, Research Centre.
  2. Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Ábel, István & Kóbor, Ádám, 2010. "A monetáris restrikció hatása strukturális VAR keretben
    [The effect of monetary restriction in a vector auto-regression framework]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 412-430.
  2. Aron Gereben & Ferenc Karvalits & Zalan Kocsis, 2011. "Monetary policy challenges during the crisis in a small open dollarised economy: the case of Hungary," BIS Papers chapters, in: Bank for International Settlements (ed.), Capital flows, commodity price movements and foreign exchange intervention, volume 57, pages 179-188 Bank for International Settlements.
  3. Martin Feldkircher, 2013. "A Global Macro Model for Emerging Europe," Working Papers 185, Oesterreichische Nationalbank (Austrian Central Bank).
  4. Bálint Tamási & Balázs Világi, 2011. "Identification of credit supply shocks in a Bayesian SVAR model of the Hungarian economy," MNB Working Papers 2011/7, Magyar Nemzeti Bank (the central bank of Hungary).

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