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Monetary policy rules and inflation process in open emerging economies: evidence for 12 new EU members

Bořek Vašíček ()

No wp968, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: This paper has three objectives. First, it aims at revealing the logic of interest rate setting pursued by monetary authorities of 12 new EU members. Using estimation of an augmented Taylor rule, we find that this setting was not always consistent with the official monetary policy. Second, we seek to shed light on the inflation process of these countries. To this end, we carry out an estimation of an open economy Philips curve (PC). Our main finding is that inflation rates were not only driven by backward persistency but also held a forward-looking component. Finally, we assess the viability of existing monetary arrangements for price stability. The analysis of the conditional inflation variance obtained from GARCH estimation of PC is used for this purpose. We conclude that inflation targeting is preferable to an exchange rate peg because it allowed decreasing the inflation rate and anchored its volatility.

Keywords: open emerging economies; CEE countries; monetary policy rules; open economy Phillips curve; conditional inflation variance (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 P24 (search for similar items in EconPapers)
Pages: pages
Date: 2009-09-01
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Monetary Policy Rules and Inflation Processes in Open Emerging Economies (2010) Downloads
Working Paper: Monetary policy rules and inflation process in open emerging economies: evidence for 12 new EU members (2009) Downloads
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