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The Effect Of Exchange Rate Arrangements On Transmission Of Interest Rates And Monetary Policy Independence: Evidence From A Group Of New Eu Member Countries "

  • Bogdan Căpraru


    (Faculty of Economics and Business Administration, "Al. I. Cuza" University, Iasi, Romania)

  • Iulian Ihnatov


    (Faculty of Economics and Business Administration, "Al. I. Cuza" University, Iasi, Romania)

The main objective of this paper is to investigate whether empirical support for the monetary independence hypothesis can be found from eight EU new member countries. Thus, we will analyze which are the consequences of the euro interest rate movements over the interest rates in selected EU new members outside euro zone, in a framework of different exchange rate regimes. We employ 2SLS cross-section fixed-effects estimation on a panel of countries, with a Newey-West estimator, robust against heteroscedasticity and autocorrelation. We find that interest rates in non-Euro area EU members with floating exchange rate arrangements are found to react considerably more to ECB’s interest rate shocks than do interest rates in those that have fixed or intermediate exchange rate regimes. The evidence suggest that countries with floating exchange rate arrangements are less independent than the fixed and intermediate exchange rate countries and, furthermore, intermediate arrangements help to preserve better the monetary policy autonomy. "

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Article provided by Alexandru Ioan Cuza University, Faculty of Economics and Business Administration in its journal Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi.

Volume (Year): 58 (2011)
Issue (Month): (november)
Pages: 71-81

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Handle: RePEc:aic:journl:y:2011:v:57:p:71-81
Contact details of provider: Postal: Universitatea Al. I. Cuza; B-dul Carol I nr. 22; Iasi
Phone: 004 0232 201070
Fax: 004 0232 217000
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