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Monetary Policy Rules For European Monetary Union Acceding Countries

  • POPESCU Iulian Vasile

    (Alexandru Ioan Cuza University of Iasi, Romania)

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    The identification of central banks (CBs) behavior in setting interest rates may give a conclusive image on both the objectives and on their prioritization. A standard approach in this respect is the estimation of a CB reaction function as a Taylor rule. Since the formulation of the original version, Taylor monetary policy rule has undergone a number of changes and extensions designed to better reflect the monetary policy decisions of central banks. This paper addresses two extensions of Taylor monetary policy rule strictly targeting the current features of the Central and Eastern European (CEE) states, emerging economies with a high degree of openness in the middle of a convergence process towards the euro area. Models are built on the assumption that the monetary authority follows a strategy of flexible inflation targeting (IT) and are estimated using the generalized method of moments (GMM).

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    File URL: http://eccsf.ulbsibiu.ro/RePEc/blg/journl/8212popescu.pdf
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    Article provided by Lucian Blaga University of Sibiu, Faculty of Economic Sciences in its journal Studies in Business and Economics.

    Volume (Year): 8 (2013)
    Issue (Month): 2 (August)
    Pages: 108-122

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    Handle: RePEc:blg:journl:v:8:y:2013:i:2:p:108-122
    Contact details of provider: Postal: Lucian Blaga University of Sibiu, Faculty of Economic Sciences Dumbravii Avenue, No 17, postal code 550324, Sibiu, Romania
    Phone: 004 0269 210375
    Fax: 004 0269 210375
    Web page: http://economice.ulbsibiu.ro/
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    1. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
    2. Svensson, Lars E.O., 1998. "Open-Economy Inflation Targeting," Seminar Papers 638, Stockholm University, Institute for International Economic Studies.
    3. Orlowski, Lucjan T., 2010. "Monetary policy rules for convergence to the Euro," Economic Systems, Elsevier, vol. 34(2), pages 148-159, June.
    4. Juan Paez-Farrell, 2007. "Understanding monetary policy in Central European countries using Taylor-type rules: the case of the Visegrad four," Economics Bulletin, AccessEcon, vol. 5(3), pages 1-11.
    5. Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
    6. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
    7. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
    8. Roberto Golinelli & Riccardo Rovelli, 2002. "Monetary Policy Transmission, Interest Rate Rules and Inflation Targeting in Three Transition Countries," Eastward Enlargement of the Euro-zone Working Papers wp10, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Aug 2002.
    9. Lars E O Svensson, 1997. "Inflation targeting in an open economy: strict or flexible inflation targeting?," Reserve Bank of New Zealand Discussion Paper Series G97/8, Reserve Bank of New Zealand.
    10. repec:ebl:ecbull:v:5:y:2005:i:7:p:1-16 is not listed on IDEAS
    11. Ignazio Angeloni & Michael Flad & Francesco Paolo Mongelli, 2007. "Monetary Integration of the New EU Member States: What Sets the Pace of Euro Adoption?," Journal of Common Market Studies, Wiley Blackwell, vol. 45, pages 367-409, 06.
    12. Frömmel, Michael & Garabedian, Garo & Schobert, Franziska, 2011. "Monetary policy rules in Central and Eastern European Countries: Does the exchange rate matter?," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 807-818.
    13. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
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