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Money Rules For The Eurozone Candidate Countries

  • Lucjan T Orlowski

    (Sacred Heart University)

This study proposes the adoption of money growth rules as indicator variables of monetary policies by the countries converging to a common currency system, in particular, by the eurozone candidate countries. The analytical framework assumes an inflation target as the ultimate policy goal. The converging countries act in essence as “takers” of the inflation target, which, in this case, is the eurozone’s inflation forecast. The study advances a forward-looking money growth model that might be applied to aid monetary convergence to the eurozone. However, feasibility of adopting money growth rules depends on stable relationships between money and target variables, which are low inflation and stable exchange rate. Long-run interactions between these variables are examined for Poland, Hungary and the Czech Republic by employing a Johansen cointegration test, along with short-run effects assessed with a vector error correction procedure.

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File URL: http://econwpa.repec.org/eps/mac/papers/0501/0501033.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0501033.

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Length: 24 pages
Date of creation: 28 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0501033
Note: Type of Document - pdf; pages: 24
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Brada, Josef C. & Kutan, Ali M., 2001. "The convergence of monetary policy between candidate countries and the European Union," Economic Systems, Elsevier, vol. 25(3), pages 215-231, September.
  2. Stanley Fischer & Ratna Sahay & Carlos A. Vegh, 2002. "Modern Hyper- and High Inflations," NBER Working Papers 8930, National Bureau of Economic Research, Inc.
  3. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  4. Fabio M. Natalucci & Federico Ravenna, 2002. "The road to adopting the euro: monetary policy and exchange rate regimes in EU candidate countries," International Finance Discussion Papers 741, Board of Governors of the Federal Reserve System (U.S.).
  5. von Hagen, J, 1995. "Inflation and Monetary Targeting in Germany," Papers 03, American Institute for Contemporary German Studies-.
  6. Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
  7. Lars E.O. Svensson & Michael Woodford, 2000. "Indicator Variables for Optimal Policy," NBER Working Papers 7953, National Bureau of Economic Research, Inc.
  8. Roberto Golinelli & Riccardo Rovelli, 2002. "Painless disinflation? Monetary policy rules in Hungary, 1991-99," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(1), pages 55-91, March.
  9. Warnock, Francis E., 2003. "Exchange rate dynamics and the welfare effects of monetary policy in a two-country model with home-product bias," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 343-363, June.
  10. Orlowski, Lucjan T., 2001. "From inflation targeting to the euro-peg: A model of monetary convergence for transition economies," Economic Systems, Elsevier, vol. 25(3), pages 233-251, September.
  11. Lucjan Orlowski, 2003. "Monetary Convergence and Risk Premiums in the EU Accession Countries," Open Economies Review, Springer, vol. 14(3), pages 251-267, July.
  12. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
  13. Bofinger, Peter & Wollmershauser, Timo, 2001. "Is there a third way to EMU for the EU accession countries?," Economic Systems, Elsevier, vol. 25(3), pages 253-274, September.
  14. Daniel L. Thornton, 1983. "Why does velocity matter?," Review, Federal Reserve Bank of St. Louis, issue Dec, pages 5-13.
  15. Peter F. Christoffersen & Robert F. Westcott, 1999. "Is Poland Ready for Inflation Targeting?," IMF Working Papers 99/41, International Monetary Fund.
  16. Michael Bruno, 1992. "Stabilization and Reform in Eastern Europe: A Preliminary Evaluation," IMF Staff Papers, Palgrave Macmillan, vol. 39(4), pages 741-777, December.
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