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Monetary transmission mechanism in Estonia - some theorethical considerations and stylized aspects

  • Raoul Lättemäe

    ()

The monetary system in Estonia is based on the currency board arrangement. The strong commitments and rule-based features of currency board imply that there is no active monetary policy in Estonia - all necessarily monetary adjustments are left to the market forces. Under fixed exchange rate and free capital mobility Estonian monetary conditions are therefore closely linked with monetary policy in Europe - in addition to the changes in Estonian risk-premium, interest rate developments in Europe can directly influence Estonian interest rates. Those monetary signals transmit widely into Estonian financial sector and ultimately into Estonian real sector through various channels. Some theoretical and intuitive aspects that can affect this process in Estonia have gained special attention in this paper.

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Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2001-4.

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Length: 24 pages
Date of creation: 13 Oct 2001
Date of revision: 13 Oct 2001
Handle: RePEc:eea:boewps:wp2001-04
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