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Exchange Rate Management and Inflation Targeting in the CEE Accession Countries

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  • Fabrizio Iacone

    ()
    (University of Bologna (Italy) and London School of Economics (GB))

  • Renzo Orsi

    ()
    (University of Bologna (Italy))

Abstract

We consider a small structural model to describe the transmission mechanism of monetary policy and the dynamics of inflation. We first verify the validity of the general structure estimating it for Germany which represents a sort of benchmark model. At least one of the links required for the transmission mechanism of monetary policy, when we analyse the Central and Eastern European Countries (CEECs), reveals to be not significant when considered on the whole sample. On the contrary the results are closer to a textbook description when the attention is shifted to the second part of the sample only. We interpret this as a piece of evidence indicating that the transition is indeed operating, but it is still ongoing and in some cases it is not complete yet. We also verify that the effects of the exchange rate on both the aggregate demand and on the inflation are in agreement with the economic theory. We conclude that the exchange rate should be actively used to control the inflation in the CEECs.

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Bibliographic Info

Paper provided by Free University Berlin, Jean Monnet Centre of Excellence in its series Eastward Enlargement of the Euro-zone Working Papers with number wp08.

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Length: 28 pages
Date of creation: 01 Aug 2002
Date of revision: 01 Aug 2002
Handle: RePEc:ezo:ezppap:wp08

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Postal: Jean Monnet Centre of Excellence, Freie Universität Berlin, Ihnestrasse 22, D-14195 Berlin
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References

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  1. Fabrizio Coricelli & Boštjan Jazbec, 2004. "Exchange Rate Arrangements in the Accession to the EMU," Comparative Economic Studies, Palgrave Macmillan, vol. 46(1), pages 4-22, March.
  2. György Szapáry, 2001. "Maastricht and the Choice of Exchange Rate Regime in Transition Countries during the Run-Up to EMU," Economics Working Papers 006, European Network of Economic Policy Research Institutes.
  3. Amato, Jeffery D. & Gerlach, Stefan, 2001. "Inflation Targeting in Emerging Market and Transition Economies: Lessons After a Decade," CEPR Discussion Papers 3074, C.E.P.R. Discussion Papers.
  4. Lars E O Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Bank of England working papers 56, Bank of England.
  5. John H. Rogers, 2001. "Price level convergence, relative prices, and inflation in Europe," International Finance Discussion Papers 699, Board of Governors of the Federal Reserve System (U.S.).
  6. Daniel Piazolo, 2000. "Eastern Europe between Transition and Accession: An Analysis of Reform Requirements," Kiel Working Papers 991, Kiel Institute for the World Economy.
  7. Bofinger, Peter & Wollmershäuser, Timo, 2000. "Monetary policy and exchange rate targeting in open economies," W.E.P. - Würzburg Economic Papers 14, University of Würzburg, Chair for Monetary Policy and International Economics.
  8. International Monetary Fund, 2000. "Exchange Rate Regimes in Selected Advanced Transition Economies," IMF Policy Discussion Papers 00/3, International Monetary Fund.
  9. Rainer Schweickert, 2001. "Assessing the Advantages of EMU-Enlargement for the EU and the Accession Countries: A Comparative Indicator Approach," Kiel Working Papers 1080, Kiel Institute for the World Economy.
  10. Gottschalk, Jan & Moore, David, 2001. "Implementing Inflation Targeting Regimes: The Case of Poland," Journal of Comparative Economics, Elsevier, vol. 29(1), pages 24-39, March.
  11. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
  12. Paul R. Masson, 1999. "Monetary and Exchange Rate Policy of Transition Economies of Central and Eastern Europe after the Launch of EMU," IMF Policy Discussion Papers 99/5, International Monetary Fund.
  13. Peter Christoffersen & Torsten Sløk & Robert Wescott, 2001. "Is inflation targeting feasible in Poland?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(1), pages 153-174, March.
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Cited by:
  1. Jaan Masso & Karsten Staehr, 2005. "Inflation Dynamics And Nominal Adjustment In The Baltic States," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 35, Faculty of Economics and Business Administration, University of Tartu (Estonia).
  2. Christian Fahrholz, 2003. "Strategic Exchange-Rate Policy of Accession Countries in ERM II," Eastward Enlargement of the Euro-zone Working Papers wp14, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Apr 2003.

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