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Monetary policy rules in transition economies: the impact of ambiguity

Author

Listed:
  • Ghatak, Subrata

    (Kingston University London)

  • Spanjers, Willem

    (Kingston University London)

Abstract

This paper discusses the potential benefits of monetary policy rules for transition economies [TEs]. It is argued that the nominal interest rate may fail to be the appropriate instrument in such rules. One reason is the amount of non-calculable political and economic risk inherent in TEs. These risks lead to a significant and volatile ambiguity premium in the interest rate over and above the normal risk premium, which makes the real equilibrium interest rate difficult to measure. Therefore, a monetary aggregate like the money base may be more appropriate as the instrument for monetary policy rules in TEs.

Suggested Citation

  • Ghatak, Subrata & Spanjers, Willem, 2007. "Monetary policy rules in transition economies: the impact of ambiguity," Economics Discussion Papers 2007-2, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2007_002
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    References listed on IDEAS

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    Cited by:

    1. Eichberger, Jürgen & Spanjers, Willy, 2007. "Liquidity and ambiguity : banks or asset markets?," Papers 07-18, Sonderforschungsbreich 504.
    2. Spanjers, Willy, 2008. "The Asian crisis and macroeconomic development: the impact of ambiguity," Economics Discussion Papers 2008-3, School of Economics, Kingston University London.
    3. Ghatak, Subrata & Moore, Tomoe, 2008. "Monetary policy rules for transition economies: an empirical analysis," Economics Discussion Papers 2008-5, School of Economics, Kingston University London.
    4. repec:awi:wpaper:0444 is not listed on IDEAS

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    More about this item

    Keywords

    Monetary Policy; Transition Economies; Political Risk; Ambiguity;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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