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Targeting Relative Inflation Forecast as Monetary Policy Framework for Adopting the Euro

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  • Lucjan T. Orlowski

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Abstract

This study proposes relative inflation forecast targeting as an operational framework of monetary policy for adopting the euro by the EU new Member States. This strategy assumes containing differentials between the domestic and the eurozone inflation forecasts as an operational target. A model prescribing the RIFT framework is presented along with a set of appropriate policy indicator variables and instrument rules. The proposed framework advances the strategy based on relatively strict inflation targeting that is currently pursued by some NMS. Several ARCHclass tests in various functional forms are employed for providing preliminary empirical evidence on convergence of inflation differentials relative to the euro area for Poland, Czech Republic and Hungary.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp754.pdf
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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp754.

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Length: pages
Date of creation: 01 Feb 2005
Date of revision:
Handle: RePEc:wdi:papers:2005-754

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Keywords: Inflation targeting; Monetary convergence; Euro adoption; EU new Member States.;

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References

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Citations

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Cited by:
  1. Lucjan T. Orlowski, 2005. "Monetary Policy Adjustments on the Final Passage towards the Euro," CASE Network Studies and Analyses 0294, CASE-Center for Social and Economic Research.
  2. Orlowski, Lucjan T. & Rybinski, Krzysztof, 2006. "Implications of ERM2 for Poland's monetary policy," Economic Systems, Elsevier, vol. 30(4), pages 346-365, December.
  3. Lucjan T. Orlowski & Kirsten Lommatzsch, 2005. "Bond Yield Compression in the Countries Converging to the Euro," William Davidson Institute Working Papers Series wp799, William Davidson Institute at the University of Michigan.

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