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Monetary Convergence And Risk Premiums In The EU Candidate Countries

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  • Lucjan T Orlowski

    (Sacred Heart University)

Abstract

This study examines the link between various monetary policy regimes and the ability to manage inflation and exchange rate risk premiums in the EU candidate countries as they undergo monetary convergence to the eurozone. The underlying hypothesis is that a system of 'flexible inflation targeting' may be an optimal policy choice for managing these two categories of risk. A model of inflation and exchange rate risk premiums within the context of inflation targeting is proposed. Recent trends in these risk premiums in Hungary, the Czech Republic and Poland are tested by using the GARCH(1,1) methodology.

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File URL: http://128.118.178.162/eps/mac/papers/0501/0501037.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0501037.

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Length: 36 pages
Date of creation: 31 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0501037

Note: Type of Document - pdf; pages: 36
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Web page: http://128.118.178.162

Related research

Keywords: inflation risk premium; exchange rate risk premium; inflation targeting; monetary convergence; transition economies;

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References

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  1. Manfred J.M. Neumann & Jrgen von Hagen, 2002. "Does inflation targeting matter?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 127-148.
  2. Jordi Galí & Tommaso Monacelli, 2004. "Monetary policy and exchange rate volatility in a small open economy," Economics Working Papers 835, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Svensson, Lars E. O., 1998. "Inflation targeting as a monetary policy rule," CFS Working Paper Series 1998/16, Center for Financial Studies (CFS).
  4. Orlowski, Lucjan T., 2001. "Monetary convergence of the EU candidates to the Euro: A theoretical framework and policy implications," ZEI Working Papers B 25-2001, ZEI - Center for European Integration Studies, University of Bonn.
  5. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers rdp9806, Reserve Bank of Australia.
  6. Ali M. Kutan & Josef C. Brada, 1998. "The persistence of moderate inflation in the Czech Republic and the Koruna crisis of May 1997," Working Papers 1998-021, Federal Reserve Bank of St. Louis.
  7. Orlowski, Lucjan T., 2001. "From inflation targeting to the euro-peg: A model of monetary convergence for transition economies," Economic Systems, Elsevier, vol. 25(3), pages 233-251, September.
  8. Bofinger, Peter & Wollmershauser, Timo, 2001. "Is there a third way to EMU for the EU accession countries?," Economic Systems, Elsevier, vol. 25(3), pages 253-274, September.
  9. Barry Eichengreen, 2002. "Can Emerging Markets Float? Should They Inflation Target?," Working Papers Series 36, Central Bank of Brazil, Research Department.
  10. Marc Zelmer & Andrea Schaechter, 2000. "Adopting Inflation Targeting: Practical Issues for Emerging Market Countries," IMF Occasional Papers 202, International Monetary Fund.
  11. Andrew Haldane, 1997. "Some Issues in Inflation Targeting," Bank of England working papers 74, Bank of England.
  12. R. Golinelli & R. Rovelli, 2001. "Interest Rate Rules and Inflation Targeting in Three Transition Countries," Working Papers 429, Dipartimento Scienze Economiche, Universita' di Bologna.
  13. Alberto Alesina & Robert J. Barro, 2001. "Dollarization," American Economic Review, American Economic Association, vol. 91(2), pages 381-385, May.
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Cited by:
  1. Evžen Koèenda & Tigran Poghosyan, 2010. "Exchange Rate Risk in Central European Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(1), pages 22-39, February.

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