IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Monetary policy under alternative exchange rate regimes in Central and Eastern Europe

  • Ziegler, Christina
Registered author(s):

    Monetary policy in CEE is an important determinant in the wage bargaining process, because trade unions have to predict inflation as one component of future real wages. This paper scrutinizes whether countries in CEE that officially announce an inflation target are tempted to act time-inconsistently and switch from the announced inflation target to an exchange rate target in order to sustain higher output via surprise inflation. If market participants discover the time-inconsistency, they will adjust their inflation expectations, which result in higher average rates of price increases. The time-inconsistent behavior in central bank interest rate setting is modeled by several Taylor rules. An empirical application provides evidence that some monetary authorities in CEE such as the Czech Republic and Slovakia have acted timeinconsistent and have focused on the exchange rate in periods of official inflation targeting, which might have contributed to higher average rates of inflation and welfare losses. Furthermore, uncertainty in wage determination process has risen due to a harder predictability of productivity and inflation as components of future nominal wages.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://econstor.eu/bitstream/10419/55847/1/687930391.pdf
    Download Restriction: no

    Paper provided by University of Leipzig, Faculty of Economics and Management Science in its series Working Papers with number 104.

    as
    in new window

    Length:
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:zbw:leiwps:104
    Contact details of provider: Postal: Marschnerstraße 31, 04109 Leipzig
    Web page: http://www.wifa.uni-leipzig.de/en/dekanat.html

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. Gunther Schnabl & Andreas Hoffmann, 2008. "Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets: An Overinvestment View," The World Economy, Wiley Blackwell, vol. 31(9), pages 1226-1252, 09.
    4. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
    5. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
    6. Ronald Ian McKinnon & Gunther Schnabl, 2006. "China’s Exchange Rate and International Adjustment in Wages, Prices, and Interest Rates: Japan Déjà Vu?," CESifo Working Paper Series 1720, CESifo Group Munich.
    7. Gunther Schnabl & Christian Danne, 2007. "A Role Model for China? Exchange Rate Flexibility and Monetary Policy in Japan," CESifo Working Paper Series 2051, CESifo Group Munich.
    8. Stephan Sauer & Jan-Egbert Sturm, 2007. "Using Taylor Rules to Understand European Central Bank Monetary Policy," German Economic Review, Verein für Socialpolitik, vol. 8, pages 375-398, 08.
    9. John B. Taylor, 2001. "The Role of the Exchange Rate in Monetary-Policy Rules," American Economic Review, American Economic Association, vol. 91(2), pages 263-267, May.
    10. Janko Gorter & Jan Jacobs & Jakob de Haan, 2008. "Taylor Rules for the ECB using Expectations Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 473-488, 09.
    11. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    12. Gunther Schnabl & Christina Ziegler, 2008. "Exchange Rate Regime and Wage Determination in Central and Eastern Europe," CESifo Working Paper Series 2471, CESifo Group Munich.
    13. Steffen Henzel & Timo Wollmershäuser, 2005. "Quantifying Inflation Expectations with the Carlson-Parkin Method: A Survey-based Determination of the Just Noticeable Difference," Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2005(3), pages 321-352.
    14. Frömmel, Michael & Schobert, Franziska, 2006. "Monetary Policy Rules in Central and Eastern Europe," Hannover Economic Papers (HEP) dp-341, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    15. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:zbw:leiwps:104. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.