MONETARY TRANSMISSION CHANNELS IN FLEXIBLE MONETARY AND EXCHANGE RATE REGIMES: THE CASE OF SELECTED TRANSITION ECONOMIES

Abstract

The paper explores selected monetary transmission channels in the case of transition economies. Namely, an exchange rate channel, an interest rate channel, direct and indirect influence to an exchange rate, are focused. Specific (former) transition economies are differentiated according the combination of implemented monetary and exchange rate regimes: exchange rate as a nominal anchor and rigid exchange rate regimes, exchange rate as a nominal anchor and intermediate exchange rate regimes, and implicit/explicit inflation targeting monetary regime and floating (managed/free) exchange rate regime. The monetary transmission is tracked during different phases in a transition process towards the EU and compared between different nominal anchors and exchange rate regimes. In order to track the influence of a monetary policy instruments (impulses) to different goals of a monetary policy (responses) during the period from 6-24 months, we use VAR and VEC models. Monthly frequency of following time series are used in the models: nominal exchange rates, consumer price indexes, foreign exchange reserves, and reference interest rates. The aim of the paper is to point to the distinction between de jure and de facto exchange rate regimes, and to the adequacy of used combination of monetary and exchange rate regimes having in mind revealed features of investigated monetary transmission channels

Keywords

• Exchange rate regimes, Monetary regimes, Nominal anchor, Monetary transmission channels.

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