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Monetary Policy Transmission Mechanisms in the CEECs: How Important are the Differences with the Euro Area?

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Author Info
Jérôme Creel*
Sandrine Levasseur

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Abstract

We use a structural VAR model with short-term restrictions to investigate the relative importance of interest rate, exchange rate and credit channels in the monetary policy transmission (MPT) for the Czech Republic, Hungary and Poland over 1993:1-2004:3. Main results are as follows. First, in the three countries, following a positive shock on the interest rate, prices increase instead of decreasing, due to the immediate depreciation of the nominal exchange rate. The results thus exhibit an “exchange rate” puzzle conducing to the appearance of a “price-puzzle”. Second, no channel is very powerful for the MPT in the three countries. Nevertheless, in the recent years the exchange rate and the interest rate channels play a major role in Poland, compared with the same in the Czech Republic and Hungary. As nominal exchange rate fluctuations allow for greater real shocks dampening in Poland, the cost of entering EMU may be more costly for this country than for the Czech Republic or Hungary.

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Publisher Info
Article provided by Icfai Press in its journal The Icfai University Journal of Monetary Economics.

Volume (Year): V (2007)
Issue (Month): 1 (February)
Pages: 30-59
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Handle: RePEc:icf:icfjmo:v:05:y:2007:i:1:p:30-59

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Stephen G. Cecchetti, 1999. "Legal structure, financial structure, and the monetary policy transmission mechanism," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 9-28. [Downloadable!]
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  2. Bonin, John & Wachtel, Paul, 2002. "Financial sector development in transition economies: Lessons from the first decade," BOFIT Discussion Papers 9/2002, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  3. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Alessio Anzuini & Aviram Levy, 2004. "Financial structure and the transmission of monetary shocks: preliminary evidence for the Czech Republic, Hungary and Poland," Temi di discussione (Economic working papers) 514, Bank of Italy, Economic Research Department. [Downloadable!]
  5. Hanson, Michael S., 2004. "The "price puzzle" reconsidered," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1385-1413, October. [Downloadable!] (restricted)
  6. Giordani, Paolo, 2004. "An alternative explanation of the price puzzle," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1271-1296, September. [Downloadable!] (restricted)
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  7. Ekaterina Vostroknutova, 2003. "Polish Stabilization: What can we learn from the I(2) Cointegration Analysis?," Economic Change and Restructuring, Springer, vol. 36(2), pages 177-198, June. [Downloadable!] (restricted)
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  8. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June. [Downloadable!] (restricted)
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  9. Ivanna Vladkova Hollar & Carlo Cottarelli & Giovanni Dell'Ariccia, 2003. "Early Birds, Late Risers, and Sleeping Beauties: Bank Credit Growth to the Private Sector in Central and Eastern Europe and in the Balkans," IMF Working Papers 03/213, International Monetary Fund. [Downloadable!]
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  10. Lionel Halpern & Charles Wyplosz, 1996. "Equilibrium Exchange Rates in Transition Economies," IMF Working Papers 96/125, International Monetary Fund.
  11. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ziaei, Sayyed Mahdi, 2009. "Assess The Long Run Effects Of Monetary Policy On Bank lending,Foreign Asset and Liability In MENA Countries," MPRA Paper 14331, University Library of Munich, Germany. [Downloadable!]
  2. Jérôme Héricourt, 2005. "Monetary policy transmission in the CEECs : revisited results using alternative econometrics," Cahiers de la Maison des Sciences Economiques bla05020, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
  3. 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). [Downloadable!]
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  4. Coricelli, Fabrizio & Égert, Balázs & MacDonald, Ronald, 2006. "Monetary transmission mechanism in Central and Eastern Europe: Gliding on a wind of change," BOFIT Discussion Papers 8/2006, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  5. Magdalena Morgese Borys & Roman Horvath, 2008. "The Effects of Monetary Policy in the Czech Republic: An Empirical Study," Working Papers 2008/4, Czech National Bank, Research Department. [Downloadable!]
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