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Monetary Policy Rules in Central and Eastern Europe

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  • Frömmel, Michael
  • Schobert, Franziska

Abstract

We estimate monetary policy rules for six central and eastern European countries (CEEC) by taking changes in the policy settings explicitly into account. Distinguishing rather fixed and more flexible exchange rate arrangements we find that for most countries exchange rates played an important role in monetary policy during the fixed exchange rate regime, whereas their influence disappears after the introduction of floating exchange rate regimes. This indicates that most countries followed their officially announced policy settings. For Slovenia and to some extent for Romania, however, we find evidence for exchange rate targeting, although they officially announced a managed float.

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File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-341.pdf
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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-341.

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Length: 23 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:han:dpaper:dp-341

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Keywords: monetary policy; Taylor rule; transition economies; CEEC; inflation targeting; interest rate policy;

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References

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  1. 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.
  2. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
  3. George A. Kahn & Klara Parrish, 1998. "Conducting monetary policy with inflation targets," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 5-32.
  4. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers 1989, C.E.P.R. Discussion Papers.
  5. von Hagen, Jürgen & Zhou, Jizhong, 2002. "The choice of exchange rate regimes: An empirical analysis for transition economies," ZEI Working Papers B 03-2002, ZEI - Center for European Integration Studies, University of Bonn.
  6. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  7. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers rdp9806, Reserve Bank of Australia.
  8. Svensson, Lars E. O., 2002. "Inflation targeting: Should it be modeled as an instrument rule or a targeting rule?," European Economic Review, Elsevier, vol. 46(4-5), pages 771-780, May.
  9. John B. Taylor, 2000. "The Monetary Transmission Mechanism and the Evaluation of Monetary Policy Rules," Working Papers Central Bank of Chile 87, Central Bank of Chile.
  10. Svensson, Lars E O, 1998. "Inflation Targeting as a Monetary Policy Rule," CEPR Discussion Papers 1998, C.E.P.R. Discussion Papers.
  11. M. S. Mohanty & Marc Klau, 2004. "Monetary policy rules in emerging market economies: issues and evidence," BIS Working Papers 149, Bank for International Settlements.
  12. John B. Taylor, 2001. "The Role of the Exchange Rate in Monetary-Policy Rules," American Economic Review, American Economic Association, vol. 91(2), pages 263-267, May.
  13. Gunther Schnabl, 2004. "De jure versus de facto Exchange Rate Stabilization in Central and Eastern Europe," International Finance 0404013, EconWPA.
  14. Laurence Ball, 2002. "Policy Rules and External Shocks," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 3, pages 047-064 Central Bank of Chile.
  15. Gerberding, Christina & Worms, Andreas & Seitz, Franz, 2004. "How the Bundesbank really conducted monetary policy: An analysis based on real-time data," Discussion Paper Series 1: Economic Studies 2004,25, Deutsche Bundesbank, Research Centre.
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Citations

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Cited by:
  1. Borek Vasicek, 2010. "Monetary Policy Rules and Inflation Processes in Open Emerging Economies," Eastern European Economics, M.E. Sharpe, Inc., vol. 48(4), pages 36-58, January.
  2. Borek Vasicek, 2011. "Is Monetary Policy in the New EU Member States Asymmetric?," Working Papers 2011/05, Czech National Bank, Research Department.
  3. Sek, Siok Kun, 2008. "Interactions between monetary policy and exchange rate in inflation targeting emerging countries: the case of three East Asian countries," MPRA Paper 12034, University Library of Munich, Germany, revised 09 Dec 2008.
  4. Carlos García & Jorge Restrepo & Scott Roger, 2009. "Hybrid Inflation Targeting Regimes," Working Papers Central Bank of Chile 533, Central Bank of Chile.
  5. Ziegler, Christina, 2012. "Monetary policy under alternative exchange rate regimes in Central and Eastern Europe," Working Papers 104, University of Leipzig, Faculty of Economics and Management Science.
  6. Garcia, Carlos J. & Restrepo, Jorge E. & Roger, Scott, 2011. "How much should inflation targeters care about the exchange rate?," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1590-1617.
  7. Josef Arlt & Martin Mandel, 2012. "Is it Possible to Predict the CNB Repo Rate on the Basis of the Backward-Looking Monetary Rule?," Politická ekonomie, University of Economics, Prague, vol. 2012(4), pages 484-504.

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