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Using extraneous information to analyze monetary policy in transition economies

  • William T. Gavin
  • David M. Kemme

Empirical work in macroeconomics is plagued by small sample size and large idiosyncratic variation. This problem is especially severe in the case of transition economies. We use a mixed estimation method incorporating information from OECD country data to estimate the parameters of a reduced-form transition economy model. An exactly identified structural VAR model is then constructed to analyze monetary policy. The OECD information increases the precision of the impulse response functions in the transition economies. The method provides a systematic way to use extraneous information to analyze monetary policy in the transition economies where data availability is limited.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2004-034.

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Date of creation: 2007
Date of revision:
Handle: RePEc:fip:fedlwp:2004-034
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  1. Kim, Soyoung, 2002. "Exchange rate stabilization in the ERM: identifying European monetary policy reactions," Journal of International Money and Finance, Elsevier, vol. 21(3), pages 413-434, June.
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  3. Magdalena Morgese Borys & Roman Horvath, 2008. "The Effects of Monetary Policy in the Czech Republic: An Empirical Study," Working Papers 2008/4, Czech National Bank, Research Department.
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  7. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
  8. Grilli, Vittorio & Roubini, Nouriel, 1992. "Liquidity and exchange rates," Journal of International Economics, Elsevier, vol. 32(3-4), pages 339-352, May.
  9. Jeffery D Amato & Stefan Gerlach, 2001. "Modelling the transmission mechanism of monetary policy in emerging market countries using prior information," BIS Papers chapters, in: Bank for International Settlements (ed.), Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries, volume 8, pages 264-272 Bank for International Settlements.
  10. William T. Gavin & Athena T. Theodorou, 2005. "A common model approach to macroeconomics: using panel data to reduce sampling error," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(3), pages 203-219.
  11. William T. Gavin & Benjamin D. Keen & Michael R. Pakko, 2005. "The monetary instrument matters," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 633-658.
  12. Golinelli, Roberto & Rovelli, Riccardo, 2005. "Monetary policy transmission, interest rate rules and inflation targeting in three transition countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 183-201, January.
  13. Alessio Anzuini & Aviram Levy, 2004. "Financial structure and the transmission of monetary shocks: preliminary evidence for the Czech Republic, Hungary and Poland," Temi di discussione (Economic working papers) 514, Bank of Italy, Economic Research and International Relations Area.
  14. Jean Boivin & Marc Giannoni, 2002. "Has monetary policy become less powerful?," Staff Reports 144, Federal Reserve Bank of New York.
  15. James H. Stock & Mark W. Watson, 2001. "Forecasting output and inflation: the role of asset prices," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  16. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
  17. Matteo Ciccarelli & Alessandro Rebucci, 2002. "The Transmission Mechanism of European Monetary Policy: Is There Heterogeneity? Is it Changing over Time?," IMF Working Papers 02/54, International Monetary Fund.
  18. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
  19. Ewa Wrobel & Malgorzata Pawlowska, 2002. "Monetary transmission in Poland: some evidence on interest rate and credit channels," National Bank of Poland Working Papers 24, National Bank of Poland, Economic Institute.
  20. Martin Eichenbaum & Charles L. Evans, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 975-1009.
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