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Euroization and cyclical stabilization in Montenegro: an empirical analysis

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  • Sokic, Alexandre
  • FABRIS, Nikola

Abstract

The aim of this paper is to evaluate the importance of the issue of the loss of an independent monetary policy in the case of officially euroized Montenegro. We examine the extent to which the monetary policy of the European Central Bank, which is set according to the economic conditions prevailing in the euro area, has contributed to the stabilisation of the business cycle of unilaterally euroized Montenegro. It is shown that under euroization the ECB monetary policy has been acyclical with respect to Montenegrin inflation and significantly countercyclical with respect to Montenegrin output growth. The comparative analysis with Serbia does not show that keeping an independent monetary policy would have improved the cyclical stabilisation in Montenegro. The pass-through from ECB policy rates to retail interest rates prevailing at commercial banks in Montenegro is shown to depend significantly on the macroeconomic and banking conditions prevailing in Montenegro.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46537.

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Date of creation: 25 Apr 2013
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Handle: RePEc:pra:mprapa:46537

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Keywords: euroisation; dollarization;

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  1. Adalbert Winkler & Francesco Mazzaferro & Carolin Nerlich & Christian Thimann, 2004. "Official dollarisation/euroisation - motives, features and policy implications of current cases," Occasional Paper Series 11, European Central Bank.
  2. Edwards, Sebastian & Magendzo, I. Igal, 2006. "Strict Dollarization and Economic Performance: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 269-282, February.
  3. Nikola Fabris & Zorica Kalezic, 2008. "Is monetary policy possible without an issuance function: the case of Montenegro," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 1(4), pages 356-375.
  4. Louis-Philippe Rochon & Sergio Rossi & Sergio Rossi, 2003. "Dollarization Out, Euroization In," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 33(1), pages 21-41, April.
  5. Henri Bourguinat & Larbi Dohni, 2002. "La dollarisation comme solution en dernier ressort," Revue Française d'Économie, Programme National Persée, vol. 17(1), pages 57-96.
  6. Sokic, Alexandre, 2010. "The monetary analysis of hyperinflation and the appropriate specification of the demand for money," MPRA Paper 21503, University Library of Munich, Germany.
  7. Kurt Schuler, 2005. "Some Theory and History of Dollarization," Cato Journal, Cato Journal, Cato Institute, vol. 25(1), pages 115-125, Winter.
  8. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, December.
  9. Edwards, Sebastian, 2001. "Dollarization: Myths and realities," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 249-265, April.
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