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

Year 2010, Volume: 2 Issue: 1, 95 - 102, 01.06.2010

Kosta Josıfıdıs Emilija Beker Pucar Novica Supıć

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.

References

• Ball, Christopher P., and Javier Reyes (2004) Inflation Targeting or Fear of Floating in Disguise?
• A Broader Perspective? http://comp.uark.edu/~reyes/Files/IT%20or%20FF%20in%20Disguise%20FINAL%20JMacro.pdf. Accessed 1.12.2008]
• Bofinger, Peter, and Timo Wollmershäuser (2001), “Managed Floating: Understanding the New
• International Monetary Order.” CEPR Discussion Paper No. 3064.
• Calvo, A.G., and M.C. Reinhart (2002), “Fear of floating”, The Quarterly Journal of Economics, Vol. 117, No. 2, pp. 379-408.
• Carare, Alina, and Mark R. Stone (2005), “Inflation Targeting Regimes”, European Economic Review, Vol. 50, No. 2006, pp. 1297-1315.
• Dvorsky, Sandra, Thomas Scheiber and Helmut Stix (2008), ”Euroization in Central, Eastern and Southeastern Europe – First Results from the New OeNB Euro Survey.“ Focus on European
• Economic Integration 1/08. Genberg, Hans (2002), “Inflation Targeting – The Holy Grail of Monetary Policy.” HKIMR Working Paper 2/2002.
• Habermeier, Karl, Annamaria Kokenyne, Romain Veyrune, and Harald Anderson (2009),
• “Revised System for the Classification of Exchange Rate Arrangements.” IMF Working Paper WP/09/211. International Monetary Fund (2009), International Financial Statistics. http://www.imfstatistics.org/imf/logon.aspx. [Accessed 30.12.2008]
• Jonas, Jiri, and Frederic S. Mishkin (2003), “Inflation Targeting in Transition Countries:
• Experience and Prospects.” NBER Working Paper Series 9667.
• Josifidis, Kosta, Jean-Pierre Allegret and Emilija Beker Pucar (2009a), ”Monetary and Exchange
• Rate Regime Changes: The Cases of Poland, Czech Republic, Slovakia and Republic of Serbia”, Panoeconomicus, Vol. 56, No. 2, pp. 199-226. Josifidis, Kosta, Jean-Pierre Allegret and Emilija Beker Pucar (2009b), Exchange Rate Regimes in
• Emerging and Transition Economies, Subotica: Faculty of Economics, University of Novi Sad. Mishkin, Frederic S. (2004), “Can Inflation Targeting Work in Inflation Targeting Countries?“ NBER Working Paper 10646.
• Orlowski, Lucjan T. (2005), Monetary Policy Adjustments on the Final Passage towards the Euro. http://www.case research.eu/upload/publikacja_plik/4830919_sa294ok.pdf. [Accessed 30.01.2009]
• Roger, Scott, Jorge Restrepo and Carlos Garcia (2009), “Hybrid Inflation Targeting Regimes.”
• IMF Working Paper WP/09/234. Svensson, Lars E. O. (2007), InflationTargeting, http://www.princeton.edu/svensson/papers/PalgraveIT.pdf. [Accessed 30.12.2008]