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Modeling Monetary Policy Transmission in Acceding Countries: Vector Autoregression Versus Structural Vector Autoregression

  • Adam Elbourne
  • Jakob de Haan

Using the vector autoregressive methodology, we present estimates of monetary transmission for five new EU member countries in Central and Eastern Europe with more or less flexible exchange rates. We select sample periods to estimate over the longest possible period that can be considered as a single monetary policy regime. To identify the vector autoregression (VAR), structural restrictions and the widely used Cholesky ordering are employed. We conclude that the structural VAR yields much better results. Fewer countries suffer from a price puzzle (i.e., an increase in prices following a monetary contraction). Our results also indicate that there are substantial differences in monetary transmission across the countries in our sample.

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Article provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.

Volume (Year): 45 (2009)
Issue (Month): 2 (March)
Pages: 4-20

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Handle: RePEc:mes:emfitr:v:45:y:2009:i:2:p:4-20
Contact details of provider: Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024

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  1. Eichenbaum, Martin, 1992. "'Interpreting the macroeconomic time series facts: The effects of monetary policy' : by Christopher Sims," European Economic Review, Elsevier, vol. 36(5), pages 1001-1011, June.
  2. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
  3. Ben S. Bernanke & Michael Woodford, 1997. "Inflation Forecasts and Monetary Policy," NBER Working Papers 6157, National Bureau of Economic Research, Inc.
  4. R. Golinelli & R. Rovelli, 2001. "Monetary Policy transmission, interest rate rules and inflation targeting in three transition countries," Working Papers 429, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," FRB Atlanta Working Paper 94-2, Federal Reserve Bank of Atlanta.
  6. Phillips, Peter C. B., 1998. "Impulse response and forecast error variance asymptotics in nonstationary VARs," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 21-56.
  7. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
  8. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
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