Risk premium shocks, monetary policy and exchange rate pass-through in the Czech Republic, Hungary and Poland

Balázs Vonnák

No 2010/1, MNB Working Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

Abstract: This paper investigates the role of monetary policy in a small open economy, where exchange rate shocks are important. VAR models are estimated for the Czech Republic, Hungary and Poland. Contemporaneous and sign restrictions are imposed in order to identify the effect of monetary policy and risk premium shocks. Estimates from the same model for Canada, Sweden and the UK are used as benchmark for developed economies with low inflation. The results suggest that the typical size a of risk premium shock renders it almost impossible for the interest rate policy to smooth the exchange rate with the aim of minimising inflationary consequences. On the other hand, low inflation may decrease the exchange rate pass-through, which helps the monetary policy ignore exchange rate shocks.

Keywords: monetary policy; risk premium shocks; exchange rate pass-through; structural VAR; sign restriction (search for similar items in EconPapers)
JEL-codes: E31 E52 F31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2010
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac, nep-mon and nep-tra
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Risk Premium Shocks, Monetary Policy and Exchange Rate Pass-Through in the Czech Republic, Hungary and Poland (2010)
Journal Article: Risk Premium Shocks, Monetary Policy and Exchange Rate Pass-Through in the Czech Republic, Hungary and Poland (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:mnb:wpaper:2010/1

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