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Monetary Transmission in Three Central European Economies: Evidence from Time-Varying Coefficient Vector Autoregressions

  • Zsolt Darvas


    (Institute of Economics - Hungarian Academy of Sciences, Bruegel-Brussels, Corvinus University of Budapest)

This paper studies the transmission of monetary policy to macroeconomic variables in three new EU Member States in comparison with that in the euro area with structural time-varying coefficient vector autoregressions. In line with the Lucas Critique reduced-form models like standard VARs are not invariant to changes in policy regimes. The countries we study have experienced changes in monetary policy regimes and went through substantial structural changes, which call for the use of a time-varying parameter analysis. Our results indicate that in the euro area the impact on output of a monetary shock have decreased in time while in the new member states of the EU both decreases and increases can be observed. At the last observation of our sample, the second quarter of 2008, monetary policy was the most powerful in Poland and comparable in strength to that in the euro area, the least powerful responses were observed in Hungary while the Czech Republic lied in between. We explain these results by the credibility of monetary policy, openness and the share of foreign currency loans.

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Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0913.

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Length: 32 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:has:discpr:0913
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  1. Jean Pisani-Ferry & Zsolt Darvas, 2010. "The threat of 'currency wars': a European perspective," Policy Contributions 461, Bruegel.
  2. Ren�e Fry & Adrian Pagan, 2011. "Sign Restrictions in Structural Vector Autoregressions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 938-60, December.
  3. Martina Cecioni & Stefano Neri, 2011. "The monetary transmission mechanism in the euro area: has it changed and why?," Temi di discussione (Economic working papers) 808, Bank of Italy, Economic Research and International Relations Area.
  4. Magdalena Morgese Borys & Roman Horváth, 2007. "The Effects of Monetary Policy in the Czech Republic: An Empirical Study," Working Papers IES 2007/26, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Oct 2007.
  5. Ciccarelli, Matteo & Rebucci, Alessandro, 2006. "Has the transmission mechanism of European monetary policy changed in the run-up to EMU?," European Economic Review, Elsevier, vol. 50(3), pages 737-776, April.
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  11. Timothy Cogley & Thomas Sargent, . "Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US," Working Papers 2133503, Department of Economics, W. P. Carey School of Business, Arizona State University.
  12. Michal Franta & Roman Horvath & Marek Rusnak, 2014. "Evaluating changes in the monetary transmission mechanism in the Czech Republic," Empirical Economics, Springer, vol. 46(3), pages 827-842, May.
  13. Judit Karsai, 2012. "Development of the Hungarian Venture Capital and Private Equity Industry over the Past Two Decades," IEHAS Discussion Papers 1201, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  14. Márkus, Judit & Pintér, Miklós & Radványi, Anna, 2011. "The Shapley value for airport and irrigation games," MPRA Paper 30031, University Library of Munich, Germany.
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  17. Jean Boivin & Marc P. Giannoni & Benoît Mojon, 2009. "How Has the Euro Changed the Monetary Transmission Mechanism?," NBER Chapters, in: NBER Macroeconomics Annual 2008, Volume 23, pages 77-125 National Bureau of Economic Research, Inc.
  18. Darvas, Zsolt, 2001. "Exchange rate pass-through and real exchange rate in EU candidate countries," Discussion Paper Series 1: Economic Studies 2001,10, Deutsche Bundesbank, Research Centre.
  19. Renee Fry & Adrian Pagan, 2007. "Some Issues in Using Sign Restrictions for Identifying Structural VARs," NCER Working Paper Series 14, National Centre for Econometric Research.
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  21. Christopher A. Sims & Tao Zha, 2006. "Were There Regime Switches in U.S. Monetary Policy?," American Economic Review, American Economic Association, vol. 96(1), pages 54-81, March.
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  26. Brzoza-Brzezina, Michał & Chmielewski, Tomasz & Niedźwiedzińska, Joanna, 2010. "Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?," Working Paper Series 1187, European Central Bank.
  27. Gert Peersman, 2005. "What caused the early millennium slowdown? Evidence based on vector autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 185-207.
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