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Monetary Policy Strategies before Euro Adoption: The Art of Chasing Many Rabbits

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Abstract

This policy paper deals with the main strategic issues for monetary policy in new EU member states before their euro adoption. These are typically rooted in the challenge of fulfilling concurrently of the Maastricht inflation and exchange rate criteria. In this paper we first put forward that these criteria are vaguely defined and distinguish between the wording, written interpretation and ’revealed’ interpretation (by the European authorities) of these criteria. Next, the paper contain the comprehensive discussion of the strategic options for monetary policy in the period of fulfilment of these criteria in terms of (i) its transparency, (ii) its continuity with the previous monetary policy regime, (iii) the choice of central parity for the ERM II, (iv) the setting of the fluctuation bandwidth, (v) the probability of fulfilment of both criteria and (vi) the impact on the autonomy of monetary policy.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its journal AUCO Czech Economic Review.

Volume (Year): 3 (2009)
Issue (Month): 2 (July)
Pages: 176-198

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Handle: RePEc:fau:aucocz:au2009_176

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Keywords: Monetary policy; euro adoption; ERM II; EU;

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  1. Balázs �Gert & Rafañ Kierzenkowski & Rafañ Kierzenkowski & Rafañ Kierzenkowski, 2005. "Asymmetric Fluctuation Bands in the ERM and ERM II : Lessons and Challenges for New EU Member States of Central and Eastern Europe," Eastern European Economics, M.E. Sharpe, Inc., vol. 43(1), pages 82-115, January.
  2. Roman Horváth & Marek Rusnák, 2008. "How Important Are Foreign Shocks in Small Open Economy? The Case of Slovakia," Working Papers IES 2008/21, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2008.
  3. Frederic S Mishkin, 2004. "Can Central Bank Transparency Go Too Far?," RBA Annual Conference Volume, in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.
  4. Fabrizio Coricelli, 2004. "Fiscal policy in an enlarged EU," Revue de l'OFCE, Presses de Sciences-Po, vol. 91(5), pages 191-208.
  5. E.O. Svensson, Lars, 1994. "Why exchange rate bands? : Monetary independence in spite of fixed exchange rates," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 157-199, February.
  6. Gheorghe Mirela & Nastase Pavel & Boldeanu Dana & Ofelia Aleca, 2009. "IT Governance in Romania: A Case Study," Global Economy Journal, De Gruyter, vol. 9(1), pages 1-14, March.
  7. Hochreiter, Eduard & Tavlas, George S., 2004. "On the road again: an essay on the optimal path to EMU for the new member states," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 793-816, October.
  8. MASSON, Paul & RUGE-MURCIA, Francisco J., 2003. "Explaining the Transition Between Exchange Rate Regimes," Cahiers de recherche 15-2003, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  9. Louis Kuijs & Alain Borghijs, 2004. "Exchange Rates in Central Europe: a Blessing or a Curse?," IMF Working Papers 04/2, International Monetary Fund.
  10. Ales Bulir & Jaromir Hurník, 2006. "The Maastricht Inflation Criterion: How Unpleasant is Purgatory?," IMF Working Papers 06/154, International Monetary Fund.
  11. 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.
  12. Égert, Balázs & Halpern, László & MacDonald, Ronald, 2004. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," CEPR Discussion Papers 4809, C.E.P.R. Discussion Papers.
  13. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  14. De Grauwe, Paul & Schnabl, G, 2005. "Nominal versus real convergence - EMU entry scenarios for the new member states," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/101093, Katholieke Universiteit Leuven.
  15. Krugman, Paul R, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 669-82, August.
  16. Bertola, Giuseppe & Caballero, Ricardo J, 1992. "Target Zones and Realignments," American Economic Review, American Economic Association, vol. 82(3), pages 520-36, June.
  17. Fabrizio Coricelli, 2002. "Exchange rate policy during transition to the European Monetary Union: The option of euroization," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(2), pages 405-417, July.
  18. Coricelli, Fabrizio & Jazbec, Bostjan & Masten, Igor, 2006. "Exchange rate pass-through in EMU acceding countries: Empirical analysis and policy implications," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1375-1391, May.
  19. Ignazio Angeloni & Michael Flad & Francesco Paolo Mongelli, 2005. "Economic and monetary integration of the new Member States - helping to chart the route," Occasional Paper Series 36, European Central Bank.
  20. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
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