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on Central Banking |
| By: | Jerome Creel (Observatoire Français des Conjonctures Économiques); Sandrine Levasseur (Observatoire Français des Conjonctures Économiques) |
| Abstract: | We use a structural VAR model with short-term restrictions to investigate the relative importance of interest rate, exchange rate and credit channels in the monetary policy transmission (MPT) for the Czech Republic, Hungary and Poland over 1993:1-2004:3. Main results are as follows. First, in the three countries, following a positive shock on the interest rate, prices increase instead of decreasing, due to the immediate depreciation of the nominal exchange rate. The results thus exhibit an "exchange rate" puzzle conducing to the appearance of a "price-puzzle". Second, none channel is very powerful for the MPT in the three countries. Nevertheless, the exchange rate and the interest rate channels play a growing role over the recent period in Poland, compared with the same channels in the Czech Republic and Hungary. As nominal exchange rate fluctuations allow for greater real shocks dampening in Poland, the cost of entering EMU may be more costly for this country than for the Czech Republic or Hungary. |
| Keywords: | monetary policy transmission, VAR models, exchange rate regimes |
| JEL: | E52 E58 F47 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0502&r=cba |
| By: | PIERGALLINI ALESSANDRO |
| Abstract: | This paper presents a dynamic New Keynesian macroeconomic model with real balance effects. Both the conditions of equilibrium determinacy under an interest rate rule of the Taylor-type and the implications for optimal monetary policy are considered. We find a number of results that would not appear in the traditional framework. It is shown that the real balance effect makes the so-called "Taylor principle" not necessary for determinacy of rational expectations equilibrium. A relatively "passive" monetary policy is found to be feasible also in the long run, but not necessarily optimal. In particular, within a class of policy rules constrained to be a linear function of state variables, an "active" optimal interest rate rule is more likely to be verified under commitment rather than under discretion. |
| Date: | 2004–02 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceiswp:200&r=cba |
| By: | PAUSTIAN MATTHIAS |
| Abstract: | This paper evaluates monetary policy rules in a business cycle model with staggered prices and wage setting a la Calvo and asymmetric information in the credit market. Rules are compared in a utility based welfare metric, the effects of the model's nonlinear dynamics are captured by a quadratic approximation to the policy function. The firms net worth crucially affects the terms of obtaining outside finance. Financial frictions dampen the economy's response to shocks and make them more persistent. For the baseline calibration, the welfare costs of price stickiness are found to be less than 0.04 per cent of steady state consumption. However, wage stickiness can induce welfare costs of up to 0.85 per cent of steady state consumption. An interest rate rule that places high weight on stabilizing wage inflation can eliminate most of these costs. These findings are by and large independent of the existence of other real distortions in the model, namely credit frictions. |
| Date: | 2004–03 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceiswp:201&r=cba |
| By: | Amir Kia (Department of Economics,Carleton University) |
| Keywords: | Monetary Policy Transparency, forward looking agents, risk, volatility, money market. |
| Date: | 2005–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:05-02&r=cba |