On 1 May 2004, new East and Central European states that had made a major breakthrough in their social and economic system found themselves within the European Union area. A fundamental decision of capital importance for their future had been the transformation of centrally planned economies into market economies. This required an extreme determination, consistence and sacrifices, and entailed different social and economic costs. The economies in transformation carried out many indispensable reforms and among them changes in the functioning of the banking sector, development of an independent central bank and choice of a defined monetary policy strategy. The fundamental problem in the monetary policy of the East and Central European countries was the necessity to get under control the high inflation and build up the credibility of their national currencies in the face of both the changing external conditions and the differentiation of the political, economic and social situation in the group of the countries in question. Stabilization of prices on a low level became the main criterion in the adaptation processes of those countries on their road to integration with the European Community structures. This criterion also became the most important determinant of the monetary policy and its strategies adopted by the individual countries running for the EU membership. The paper focused on presentation of the methods adopted by the group of East European Baltic countries in the conduct of their economic policy. Thus, the monetary policy of Lithuania, Latvia and Estonia was presented. These three countries distinguish themselves among the new EU members by their geopolitical situation because all of them have emerged from the disintegration of the Soviet Union and constitute a relatively homogeneous group of economies in transformation. Certain elements of homogeneity can also be observed in the monetary policy adopted by them. In the first part of the paper, the essence of the exchange rate strategy applied in practice by the new Baltic EU member countries was characterized. Then, in consideration of the fact that the most important conditions substantial from the point of view of the monetary policy, and related to the accession of the countries in question to the Eurosystem, were the independence of the central bank and the definition of the main goal of their monetary policy so as to make it compatible with the goal of the European Central Bank, the process of shaping the monetary policy in the individual countries was presented in more detail, in concentrating on the problem of institutional independence of the central bank and on the main goals and instruments of the monetary policy. Also, the course of the inflationary processes over the period of 1997-2005 was monitored.
The paper presents calculations of the optimal horizons for inflation targeting in Hungary, using small-scale macro and vector auto-regressive models, relying on the theoretical framework of Batini and Nelson (2000). Given the assumed parameter values of central-bank preference, it was found that current National Bank practice, i. e. putting the inflation forecast for the next one to one-and-a-half years into the policy rule and using this horizon in its communication, can be regarded as optimal with respect to welfare analysis. In most cases of potential future shocks, this horizon also proved long enough to bring inflation back on target following an optimal monetary policy. However, there is no precluding the probability of future shocks that divert inflation from its target for longer than one to one-and-a-half years, when MNB follows an optimal monetary policy.
The article sums up the economic thinking behind the system for targeting inflation in Hungary and the main economic-policy experiences with this. It presents briefly a framework model that the author sees as best reflecting present central-bank thinking about the functioning of the economy. It summarizes what normative conclusions can be drawn with the model about optimal monetary policy, and how these theoretical issues are reflected in the monetary systems for targeting inflation. The article then turns to international experience with the effectiveness and success of the regime. Finally, the author looks back over five years at the conditions that accompanied the targeting of inflation, at subsequent experiences with the economic-policy issues of that period, and at operation of the system so far.
In this paper, we examine the extent to which monetary policy might be constrained by the evolution of government indebtedness. We employ a threshold vector auto regression (TVAR) model to capture the possible asymmetries in the relationship between monetary policy and the real economy, corresponding to a switch between low and high growth rates of the government debt-to-GDP ratio. The analysis is performed on Czech data over the 2001 – 2016 periods. The results show that the reaction of a central bank to macroeconomic shocks can be regime-dependent. We find that a rising government debt could constrain monetary policy, which manifests through an altered monetary policy transmission to the real economy. Overall, our study demonstrates the advantages of using a non-linear approach to study the fiscal and monetary policy interactions.
This paper deals with oil prices and with their relation on the value of US dollar, and draws some conclusions about their correlation. The author used the annual figures for the main world currencies and oil prices, obtained from many different sources. International commodity prices are mostly expressed in dollars, especially oil prices, or in the terms of the indices based on dollar prices. The oil prices are obviously affected by the inflation and also by the value of the US dollar exchange rate. There is a definite link between the monetary policy, the exchange rates and the other factors and the oil prices, which is analyzed in this paper.
The purpose of this paper is two-fold. First, it attempts to determine the causes of the financial crisis that occurred between 2007 and 2009. Second, the author gives an answer to the question of what systemic changes should be introduced to avoid a similar scenario in future. To pinpoint the causes of the crisis, a method based on verification of scientific hypotheses is used. The process of verification allows one to assert that the subprime crisis which started in the USA was caused by both introduction of the National Homeownership Strategy in 1993 and too low interest rates. As for the second problem, a good solution can be the introduction of a new monetary policy instrument. Central bank's new interest rate should determine a minimum level of mortgage loans regardless of the price of money on the interbank market.
The paper is focused on the appreciation of the Slovak currency, which started to be a more significant in the second part of the year 2002. The application of the international relations (purchasing power parity, interest rate parity and Fischer relation) is not sufficiently successful for currency analysis. Therefore it is efficient to extend this analysis on monetary policy based on the balance of national bank and particular accounts of the balance of payments. The Mundell-Fleming model, its total differential formulation, appears as the actual instrument for the mentioned analysis. The recent process of the evaluation of the Slovak crown corresponds to the theoretical deduction of the Mundell-Fleming model.
This paper attempts to provide an answer on the question - whether the recent surge in the US real estate prices is fundamentally driven, or whether the current situation reflects the 'bubble' symptoms. Implicitly, also monetary policy in the euro area in these days is addressed as well with France and Spain experiencing exorbitant price increases of the real estate during at least the last four years. Our aim is to divide the valuation of the US housing market into a 'bubble' component and into a fundamentally justified component. For this purpose, the US real estate market and its peculiarities are described and the empirical indications of a bubble are identified. We contrast the empirical results with the ongoing question whether the asset prices and the asset price bubbles are and should be a matter of attention of the central bank authorities in the process of the monetary policy making.
In this paper the author uses an open economy dynamic stochastic general equilibrium model and estimates it for Romanian economy using the Bayesian techniques. He estimates then the impact of domestic and external monetary policy shocks. The domestic interest shocks produce strong effects on output and exchange rate, and moderate ones on inflation. The effects are not very persistent. The results show that the monetary policy shocks from Euro Area do matter for Romanian economy, but in moderate way. Overall, monetary policy in Romania is found to be less gradual but more conservative than the ECB one.
The aim of the article is to present the relationship between the overall economic situation and the situation on the financial markets, and the consequences for the financial markets arising from it. First of all, the concept of financial instability is explained and main theories accounting for its origins are discussed. On the basis of that theoretical reflection, the author outlines the observed relation between the overall economic situation and the state of financial markets. Finally, he describes problems which economic authorities face in case of speculation bubbles' appearance.
Monetary base is one of these economical categories which play the particular role not only in monetary policy but also in whole economy. The main aim of the article was to present changes and structure of monetary base in Poland, as well as to define causes of these changes. In analyzed period (2001-2007) volume of the monetary base systematically increased (+53,9 billion PLN). Financial reserve accrual's variations were caused by unequal level of debt of household and enterprises, foreign assets' influx into Poland, and most of all operations of the central bank.
The article analyses the relation between investments and share market profitability. The research covered the investment effect in the USA and other countries. It measured the monetary policy influence on stock market index Standard & Poors' return rate. The research included also the degree of economy globalisation in a given country to explain the mechanism combining market share values and future investment tendencies in the mature and emerging economies. The researchers compared direct and indirect investment effect in chosen countries. The research proves that FED expansive monetary policy in a year T positively influences and the restrictive one negatively influences share market in the same year. The expansive policy leads also to the much higher investments next year than the restrictive one. Between the stock market index rate in a given year and real investment changes in the next year there is a positive correlation. The value of this relation reflects the strength of investment effect. Its importance describes the indicator measuring the relation between emission revenues and investment expenditure. The characteristic feature of emerging markets is that their share markets predict especially future domestic investment activities. Share market is more effective as a transmission channel than traditional rate. It is visible in all the mature markets. The investment effect can be observed also in the relation between stock exchange index and accompanying changes of business optimism.
The paper presents the monetary policy and the principles of its formulating in the EU and the euro zone with the special emphasis on decision-making process in the commonwealth issues performed by European Central Bank (ECB). In order to enable the ECB to function properly it has been provided with a lot of independence which falls into 4 categories: institutional, personal, financial and functional. The organizational structure of the ECB is composed of: the Governing Council - the highest managerial body, the Executive Board the executive body and the General Council. Each of the above mentioned bodies has its own procedures of decision making, methods of voting relevant to their tasks and competence. The major task of the ECB together with the central banks of the EU members states of which ECB is composed is to keep prices stable. Summing up, the procedures of action used by ECB have been shaped in such a way which prevents political authorities from putting any pressure on the Bank and enable the Bank to make decisions effectively. At the same time, the decision making process concerning the monetary policy has been centralized in ECB whereas the executive functions have been decentralized on the level of national banks.
The aim of the paper is to examine the experiences of the euro zone functioning over the last few years. The authoress is considering the importance and effectiveness of using the convergence criteria in preparing the EU countries for participation in the euro zone.She then moves on to institutional and legal solutions concerning a single monetary policy in the euro zone and decentralized budget policy of the member states. In particular, she analyses the practical functioning of solutions disciplining a budget policy as included in the Pact of Stability and Rise. The conducted research indicates that the public finance regulations have not been able to efficiently reduce too high budget deficits. The new member states of the EU preparing for entering the euro zone should immediately start the reform of their public finance which would enable them to reduce the risk of too high budget deficits that might arise after replacing their national currencies with the euro.
This paper presents how monetary policy, restricted only by price stability, may easily become propitious to asset inflation and - eventually - to a financial crisis. This risk is particularly high when the financial system lacks proper regulation and effective supervision. Hasty liberalization, negligence of official oversight and 'Greenspan doctrine' which refuted any activist policy promoting financial stability characterized Fed's monetary policy under the former Fed's governor. The paper also analyses another aspect of the linkages between monetary policy and financial crises - monetary policy reaction to financial crises. It is not surprising that it consists of cutting interest rates and bail-out of insolvent, systemically important financial institutions. Such policy, especially when run too long and changed too abruptly, not only creates moral hazards but it also sets the stage for another 'search for yield' and build-up of another speculative bubble. As a result, monetary policy becomes asymmetric and pro-cyclical. Fed's reaction to the recent crisis seems to be very much in line with this pattern typical of Fed's policy in the past. However, this time the scale of flooding the economy with liquidity and - as a consequence - the risks of future major imbalances in the financial system are unprecedented. A general conclusion of the paper says that there can't be a sound financial and economic system unless money itself is a scarce resource. However trivial this statement is, monetary policy of some central banks seems to miss the point.
The article generalizes the tendencies of the functioning of Ukraine's money-and-credit market during the crisis period. The authors evaluate the adequacy of the current anti-crisis money-and-credit policy and outline the key challenges and risks for the monetary and credit sphere of Ukraine's economy in the current year.
This paper attempts to aggregate and summarize fresh findings on the monetary transmission mechanism in Hungary. Within a research project at the National Bank of Hungary, nine studies have appeared that investigate the channels through which Hungarian monetary policy affects the economy. This paper creates a framework for synthesizing particular results, based on Mishkin's (1996) classification, and analyses how aggregate demand is affected through these channels. The conclusion is that in the last ten years, monetary policy has exerted measurable influence on real activity and prices. The dominance of the exchange-rate channel explains why prices respond faster and output responds more mildly than in closed developed economies like the United States or the Euro Zone. We expect that after Hungary's adoption of the euro, the absence of an exchange rate will be compensated by the fact that the interest-rate channel will work through foreign demand as well, so that no significant monetary-transmission asymmetries can be expected when the country is inside the Euro Zone.
The paper summarizes the principles of the Dynamic Stochastic General Equilibrium models, the possible extensions of the basic structure, and their implications for practical use. The author also discusses in detail the model-building strategy of the Federal Reserve System, the International Monetary Fund and the European Central Bank, and presents the model structure, some application of it, and its main implications.
The monetary policy plays an important role in macroeconomic policy of government. There is a question concerning type of this policy expansive or restrictive (easy or tidy monetary policy). Unfortunately, we have a lot of criteria. Each of them gives us other answer. So due to equitation of Irving Fisher we have dominantly expansive monetary policy. The same situation exists when we use nominal value of rediscount interest rate of central bank. Opposite result appears when we use real value of this interest rate or level of obligatory reserve. Taking under consideration liquidity on money market we know, that level of interest rate is too high.
Although recent years have seen a decline in major central banks' FX market activity, such intervention has remained an active policy tool in several emerging economies and/ or countries applying inflation targeting. The paper surveys the literature on its effectiveness, presenting relevant theories and international empirical evidence and trying to identify aspects that increase effectiveness under various circumstances. Only cautious conclusions can be drawn. Central-bank intervention can be effective, mainly because FX activity by central banks can shape market expectations and influence the process of information aggregation. The effectiveness can be improved by matching objectives with appropriate intervention techniques and matching intervention strategy to circumstances in a flexible way. Intervention aiming at delivering strategic policy objectives is likely to be more efficient if pre-announced, transparent, coordinated with other central banks, and in line with macroeconomic policy. But to reach tactical objectives, central banks should conduct intervention in secret, paying heed to timing, around macro news announcements or during heavy trading volume. Central bankers should keep in mind that intervention - regardless of the chosen technique - affects the exchange rate mainly in the short or medium run. A more permanent shift in exchange rates calls for a change in fundamentals such as monetary-policy action..
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