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Monetary Convergence And Risk Premiums In The EU Candidate Countries

  • Lucjan T Orlowski

    (Sacred Heart University)

This study examines the link between various monetary policy regimes and the ability to manage inflation and exchange rate risk premiums in the EU candidate countries as they undergo monetary convergence to the eurozone. The underlying hypothesis is that a system of 'flexible inflation targeting' may be an optimal policy choice for managing these two categories of risk. A model of inflation and exchange rate risk premiums within the context of inflation targeting is proposed. Recent trends in these risk premiums in Hungary, the Czech Republic and Poland are tested by using the GARCH(1,1) methodology.

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File URL: http://econwpa.repec.org/eps/mac/papers/0501/0501037.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0501037.

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Length: 36 pages
Date of creation: 31 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0501037
Note: Type of Document - pdf; pages: 36
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Galí, Jordi & Monacelli, Tommaso, 2002. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," CEPR Discussion Papers 3346, C.E.P.R. Discussion Papers.
  2. Bofinger, Peter & Wollmershäuser, Timo, 2001. "Is there a third way to EMU for the EU accession countries?," Munich Reprints in Economics 20209, University of Munich, Department of Economics.
  3. Lucjan T Orlowski, 2005. "Monetary Convergence of the EU Candidates to the Euro: A Theoretical Framework and Policy Implications," Macroeconomics 0501032, EconWPA.
  4. Lars E.O. Svensson, 1998. "Inflation Targeting as a Monetary Policy Rule," NBER Working Papers 6790, National Bureau of Economic Research, Inc.
  5. Laurence Ball, 1998. "Policy Rules for Open Economies," NBER Working Papers 6760, National Bureau of Economic Research, Inc.
  6. Alberto Alesina & Robert J. Barro, 2001. "Dollarization," American Economic Review, American Economic Association, vol. 91(2), pages 381-385, May.
  7. Barry Eichengreen, 2002. "Can Emerging Markets Float? Should They Inflation Target?," Working Papers Series 36, Central Bank of Brazil, Research Department.
  8. 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.
  9. R. Golinelli & R. Rovelli, 2001. "Interest Rate Rules and Inflation Targeting in Three Transition Countries," Working Papers 429, Dipartimento Scienze Economiche, Universita' di Bologna.
  10. Neumann, Manfred J. M. & von Hagen, Jürgen, 2002. "Does inflation targeting matter?," ZEI Working Papers B 01-2002, University of Bonn, ZEI - Center for European Integration Studies.
  11. Ali M. Kutan & Josef C. Brada, 1998. "The persistence of moderate inflation in the Czech Republic and the Koruna crisis of May 1997," Working Papers 1998-021, Federal Reserve Bank of St. Louis.
  12. Andrew Haldane, 1997. "Some Issues in Inflation Targeting," Bank of England working papers 74, Bank of England.
  13. Marc Zelmer & Andrea Schaechter, 2000. "Adopting Inflation Targeting: Practical Issues for Emerging Market Countries," IMF Occasional Papers 202, International Monetary Fund.
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