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Monetary policy during transition : an overview

  • De Melo, Martha
  • Denizer, Cevdet

In this paper, the authors examine monetary policy in 26 transition economies in Central and Eastern Europe (CEE) and the Former Soviet Union (FSU) between 1989-1994. They provide a schema for classifying the use of 6 important monetary policy instruments, both direct and indirect, and suggest criteria for defining market-oriented use of these instruments. They assess the extent of market-oriented instruments use during the period under review and around stabilization. The impact of instrument use on inflation and financial depth, which declined dramatically during the transition's early years, is also explored. The authors indicate several clear patterns. Among them, by the end of 1994, slightly less than half the countries were relying primarily on market-oriented forms of monetary instruments and had moderate or low reliance on such instruments. Countries quickly formulating a monetary policy response were more likely to switch to market-oriented instruments. Second, CEE countries moved more rapidly than FSU countries towards these forms, even when stage of stabilization is controlled for. Third, using credit ceilings appeared helpful in the year of stabilization, especially in CEE countries; the elimination of these controls was associated with effective stabilization. The authors conclude that monetary stability goes hand in hand with adjustment in the real sectors. Generally, the relatively weak link between market orientation of instruments and indicat effective suggests thst inflation control and financial depth are more directly related to policy stance, which is in turn related to broader structural reforms.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1706.

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Date of creation: 31 Jan 1997
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Handle: RePEc:wbk:wbrwps:1706
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  1. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  2. repec:imf:imfpdp:9411 is not listed on IDEAS
  3. Easterly, William & Fischer, Stanley, 1995. "The Soviet Economic Decline," World Bank Economic Review, World Bank Group, vol. 9(3), pages 341-71, September.
  4. Robert Flood & Michael Mussa, 1994. "Issues Concerning Nominal Anchors for Monetary Policy," NBER Working Papers 4850, National Bureau of Economic Research, Inc.
  5. Easterly, William R & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1995. "Money Demand and Seigniorage-Maximizing Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 583-603, May.
  6. Hugh Bredenkamp, 1993. "Conducting Monetary and Credit Policy in Countries of the Former Soviet Union: Some Issues and Options," IMF Working Papers 93/23, International Monetary Fund.
  7. Guillermo Calvo & Fabrizio Coricelli, 1992. "Output Collapse in Eastern Europe: The Role of Credit," IMF Working Papers 92/64, International Monetary Fund.
  8. Thorne, Alfredo & DEC, 1993. "Eastern Europe's experience with banking reform : is there a role for banks in the transition?," Policy Research Working Paper Series 1235, The World Bank.
  9. Tomás J. T. Baliño & Charles Enoch & William E. Alexander, 1995. "The Adoption of Indirect Instruments of Monetary Policy," IMF Occasional Papers 126, International Monetary Fund.
  10. Guillermo A. Calvo & Carlos A. Végh, 1994. "Inflation Stabilization And Nominal Anchors," Contemporary Economic Policy, Western Economic Association International, vol. 12(2), pages 35-45, 04.
  11. International Monetary Fund, 1994. "The Coordination of Domestic Public Debt and Monetary Management in Economies in Transition: Issues and Lessons From Experience," IMF Working Papers 94/148, International Monetary Fund.
  12. Easterly, W. & Wolf, C.H., 1996. "The Wild Ride of the Ruble," Working Papers 96-01, New York University, Leonard N. Stern School of Business, Department of Economics.
  13. Gerard Caprio, Jr., 1995. "The role of financial intermediaries in transitional economies," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 257-302, June.
  14. Marc Quintyn, 1994. "Government Securities Versus Central Bank Securities in Developing Open Market Operations: Evaluation and Need for Coordinating Arrangements," IMF Working Papers 94/62, International Monetary Fund.
  15. Easterly, William & da Cunha, Paulo Viera & DEC, 1994. "Financing the storm : macroeconomic crisis in Russia, 1992-93," Policy Research Working Paper Series 1240, The World Bank.
  16. Michael Mussa & Robert P. Flood, 1994. "Issues Concerning Nominal Anchors for Monetary Policy," IMF Working Papers 94/61, International Monetary Fund.
  17. Paul Louis Ceriel Hilbers, 1993. "Monetary Instruments and their Use During the Transition From a Centrally Planned to a Market Economy," IMF Working Papers 93/87, International Monetary Fund.
  18. repec:imf:imfpdp:9410 is not listed on IDEAS
  19. Thorne, Alfredo, 1993. "Eastern Europe's experience with banking reform: Is there a role for banks in the transition?," Journal of Banking & Finance, Elsevier, vol. 17(5), pages 959-1000, September.
  20. Scott Hunt, 1993. "Economic Transformation in Central Europe: A Progress Report," Comparative Economic Studies, Palgrave Macmillan, vol. 35(3), pages 64-65, September.
  21. Marek Dabrowski, 1995. "The Reasons of the Collapse of the Ruble Zone," CASE Network Studies and Analyses 0058, CASE-Center for Social and Economic Research.
  22. Carlos A. Végh Gramont & Ratna Sahay, 1995. "Inflation and Stabilization in Transition Economies: A Comparison with Market Economies," IMF Working Papers 95/8, International Monetary Fund.
  23. repec:imf:imfpdp:9418 is not listed on IDEAS
  24. Mitra Farahbaksh & Gabriel Sensenbrenner, 1996. "Bank-By-Bank Credit Ceilings: Issues and Experiences," IMF Working Papers 96/63, International Monetary Fund.
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