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Monetary Transmission Mechanism In Central And Eastern Europe: Surveying The Surveyable

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  • Balázs Égert
  • Ronald MacDonald

Abstract

This paper surveys recent advances in empirical studies of the monetary transmission mechanism, with special attention to Central and Eastern Europe (CEE). Our results indicate that the strength of the exchange rate pass-through substantially declined over time mainly due to a fall in inflation rates and to some extent due to the so-called composition effect. The asset price channel is weak and is likely to remain weak because of shallow stock and private bond markets and because of low stock and bond holdings of domestic households. House prices may become an exception with booming mortgage lending and with high owner occupancy ratios. While the credit channel could be a powerful channel of monetary transmission - as new funds raised on capital markets are close to zero in CEE - it is actually not, as both commercial banks and non-financial corporations can escape domestic monetary conditions by borrowing from their foreign mother companies. The moderately good news, however, is that those banks and firms are influenced by monetary policy in the euro area because their parent institutions are themselves subjected to the credit channel in the euro area. Copyright © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd.

Suggested Citation

  • Balázs Égert & Ronald MacDonald, 2009. "Monetary Transmission Mechanism In Central And Eastern Europe: Surveying The Surveyable," Journal of Economic Surveys, Wiley Blackwell, vol. 23(2), pages 277-327, April.
  • Handle: RePEc:bla:jecsur:v:23:y:2009:i:2:p:277-327
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    References listed on IDEAS

    as
    1. Katerina Arnostova & Jaromir Hurnik, 2005. "The Monetary Transmission Mechanism in the Czech Republic (evidence from VAR analysis)," Working Papers 2005/04, Czech National Bank, Research Department.
    2. Zelal Aktas & Neslihan Kaya & Umit Ozlale, 2005. "The Price Puzzle in Emerging Markets : Evidence from the Turkish Economy Using Model Based Risk Premium Derived from Domestic Fundamentals," Working Papers 0502, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General

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