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Euro Dominance Hypothesis and Monetary Policy Independence the Czech Perspective

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  • Łukasz Goczek
  • Dagmara Mycielska

Abstract

In this article, we investigate the actual level of monetary policy independence in the Czech Republic. We formulate the research agenda in terms of the Euro Dominance Hypothesis. The situation of the non-euro EU countries with derogation in terms of joining the EMU, like the Czech Republic, is similar to the pre-euro situation of the euro area countries, in which the problem of the stability of the European Mechanism System was predominant. We investigate the co-movement of interest rates between the Czech Republic and the Eurozone to assess the potential costs of monetary integration. Using cointegration and VECM methods we show that the ECB monetary policy influences monetary policy in the Czech Republic and the actual level of monetary independence in the Czech Republic is much lower than it is presumed. Therefore, we argue that for the Czech Republic the cost of the joining the EMU will be lower than expected.

Suggested Citation

  • Łukasz Goczek & Dagmara Mycielska, 2016. "Euro Dominance Hypothesis and Monetary Policy Independence the Czech Perspective," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(6), pages 655-670.
    • Handle: RePEc:prg:jnlpep:v:2016:y:2016:i:6:id:584:p:655-670
    DOI: 10.18267/j.pep.584
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    Cited by:

    1. Milan Deskar-Škrbiæ & Antonija Buljan & Mirna Dumèiæ, 2020. "Real interest rate convergence and monetary policy independence in CEE countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 349-380.
    2. Łukasz Goczek & Dagmara Mycielska, 2019. "Actual monetary policy independence in a small open economy: the Polish perspective," Empirical Economics, Springer, vol. 56(2), pages 499-522, February.

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    More about this item

    Keywords

    cointegration; VECM; monetary policy; interest rates; the Czech Republic;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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