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Monetary Transmission in the New EU Member States: Evidence from Time-Varying Coefficient Vector Autoregression

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  • Zsolt Darvas

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Abstract

This paper studies the transmission of monetary policy in selected new EU Member States with structural time-varying coeffi cient vector autoregressions in comparison with that in the euro area. In line with the Lucas Critique, reduced-form models, like standard vector autoregressions (VARs), are not invariant to changes in policy regimes. Many of the new members of the EU have experienced changes in monetary policy regimes, which calls for the use of a time-varying parameter analysis. Our results indicate that some parameters change signifi cantly, altering the shape of the impulse response functions. Monetary policy is most powerful in Poland and comparable in strength to that in the euro area and is least powerful in Hungary, while the strength of monetary policy in the Czech Republic lies in between. We explain these results by the credibility of monetary policy and openness.

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Bibliographic Info

Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.

Volume (Year): (2006)
Issue (Month): 1 ()
Pages: 140-155

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Handle: RePEc:onb:oenbfi:y:2006:i:1:b:4

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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. Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," Working Paper 2004-14, Federal Reserve Bank of Atlanta.
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    • Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
  4. Gert Peersman, 2005. "What caused the early millennium slowdown? Evidence based on vector autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 185-207.
  5. Mojon, Benoît & Kashyap, Anil K. & Angeloni, Ignazio & Terlizzese, Daniele, 2002. "Monetary Transmission in the Euro Area : Where Do We Stand?," Working Paper Series 0114, European Central Bank.
  6. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," International Finance Discussion Papers 462, Board of Governors of the Federal Reserve System (U.S.).
  7. Angeloni, Ignazio & Ehrmann, Michael, 2003. "Monetary policy transmission in the euro area: any changes after EMU?," Working Paper Series 0240, European Central Bank.
  8. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  9. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September.
  10. Balázs Égert & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in T ransition Economies: T aking Stock of the Issues," Working Papers 106, Oesterreichische Nationalbank (Austrian Central Bank).
  11. Canova, Fabio & Gambetti, Luca, 2006. "Structural Changes in the US Economy: Bad Luck or Bad Policy?," CEPR Discussion Papers 5457, C.E.P.R. Discussion Papers.
  12. Jon Faust & Eric Swanson & and Jonathan H. Wright, 2002. "Identifying vars based on high frequency futures data," International Finance Discussion Papers 720, Board of Governors of the Federal Reserve System (U.S.).
  13. Cooley, Thomas F. & Dwyer, Mark, 1998. "Business cycle analysis without much theory A look at structural VARs," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 57-88.
  14. Darvas, Zsolt & Szapary, Gyorgy, 2000. "Financial Contagion in Five Small Open Economies: Does the Exchange Rate Regime Really Matter?," International Finance, Wiley Blackwell, vol. 3(1), pages 25-51, April.
  15. Fabrizio Coricelli & Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission in Central and Eastern Europe: Gliding on a Wind of Change," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 44-87.
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Citations

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Cited by:
  1. Oxana Babetskaia-Kukharchuk, 2007. "Transmission of Exchange Rate Shocks into Domestic Inflation: The Case of the Czech Republic," Working Papers 2007/12, Czech National Bank, Research Department.
  2. Magdalena M Borys & Roman Horvath, 2008. "The Effects of Monetary Policy in the Czech Republic: An Empirical Study," William Davidson Institute Working Papers Series wp922, William Davidson Institute at the University of Michigan.
  3. Rebeca Jiménez-Rodriguez & Amalia Morales-Zumaquero & Balazs Egert, 2010. "The VARying Effect of Foreign Shocks in Central and Eastern Europe," CESifo Working Paper Series 3080, CESifo Group Munich.
  4. Catherine Prettner & Klaus Prettner, 2012. "After Two Decades of Integration: How Interdependent are Eastern European Economies and the Euro Area?," EcoMod2012 4421, EcoMod.
  5. Fabrizio Coricelli & Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Central & Eastern Europe: Gliding on a Wind of Change," William Davidson Institute Working Papers Series wp850, William Davidson Institute at the University of Michigan.
  6. 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.
  7. Roman Hušek & Tomáš Formánek, 2011. "Comparing the Convergence of Czech Economy with Selected Euro Zone Members Using Impulse-Response Functions and Supply and Demand Shocks," Politická ekonomie, University of Economics, Prague, vol. 2011(3), pages 291-309.
  8. Popescu, Iulia Vasile, 2012. "Effects of monetary policy in Romania. A VAR approach," MPRA Paper 41686, University Library of Munich, Germany.

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