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Monetary Transmission Mechanism in Central and Eastern Europe: Surveying the Surveyable

Author

Listed:
  • Balázs Égert

    (OECD)

  • Ronald MacDonald

    (University of Glasgow)

Abstract

This paper surveys recent advances in empirical studies of the monetary transmission mechanism (MTM), with special attention to Central and Eastern Europe (CEE). Our results indicate that the strength of the exchange rate pass-through substantially declined over time mainly due to a fall in inflation rates and to some extent due to the so-called composition effect. The asset price channel is weak and is likely to remain weak because of shallow stock and private bond markets and because of low stock and bond holdings of domestic household. House prices may become an exception with higher levels mortgage lending and with high owner occupancy ratios. While the credit channel could be a powerful channel of monetary transmission - as new funds raised on capital markets are close to zero in CEE - it is actually not, as both commercial banks and non-financial corporations can escape domestic monetary conditions by borrowing from their foreign mother companies. The moderately good news is, however, that those banks and firms are influenced by monetary policy in the euro area because their parent institutions are themselves subjected to the credit channel in the euro area. Canaux de transmission de la politique monétaire dans les PECO: une revue de la littérature Ce papier vise à synthétiser la littérature empirique portant sur le mécanisme de transmission monétaire, et tout particulièrement dans les pays d’Europe centrale et orientale (PECO). Cette étude montre que l’effet du taux de change sur l’inflation a diminué au cours du temps principalement en raison de la baisse des taux d’inflation, mais aussi dans une certaine mesure suite à un effet dit de composition. Le canal des prix d’actifs est faible et le restera probablement en raison des marchés d’actions et de titres obligataires privés peu développés, mais aussi à cause d’un faible taux de détention d’actifs financiers par les ménages. En revanche, avec l’accroissement du nombre de prêts immobiliers et de ménages propriétaires de leur appartements, les prix immobiliers peuvent jouer un rôle plus important à l’avenir. Même si le canal du crédit devrait être un des canaux de transmission les plus puissants, sachant que le financement externe sur les marchés est quasiment nul dans les PECO, tel n’est pas le cas pour autant. La raison en est que les banques commerciales mais aussi les entreprises peuvent échapper aux conditions monétaires nationales par le biais de financements obtenus auprès de leurs maisons mères implantées à l’étranger. La nouvelle quelque peu encourageante est que les entreprises mères sont elles-mêmes contraintes par la politique monétaire de la zone euro, exportant ainsi les effets du canal du crédit dans les PECO.

Suggested Citation

  • Balázs Égert & Ronald MacDonald, 2008. "Monetary Transmission Mechanism in Central and Eastern Europe: Surveying the Surveyable," OECD Economics Department Working Papers 654, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:654-en
    DOI: 10.1787/230605773237
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    Keywords

    asset prices; canal des prix d’actifs; canal du crédit; canal du taux de change; canal du taux d’intérêt; Central Europe; credit channel; exchange rate pass-through; interest rate; interest rate pass-through; monetary transmission mechanism; PECO; transmission monétaire;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General

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