Responses to Monetary Policy Shocks in the East and the West of Europe: A Comparison

28 Pages Posted: 29 Jul 2009

Date Written: July 28, 2009

Abstract

This paper estimates responses to monetary shocks for several of the current members of the EMU (in the pre-EMU sample) and for the Central and East European (CEE) countries, along with the mean response in each of the groups. The problem of the short sample, especially acute in the case of the CEE, is mitigated by using a Bayesian estimation which combines information across countries. The estimated responses are similar across regions, but there is some evidence of more lagged and deeper price responses in the CEE economies. If this results from structural differences, premature entering the EMU would cause problems, but if from credibility issues, entering the EMU would be desirable. Also, with longer response lags, conducting a stabilizing monetary policy should be difficult in the CEE currently, and giving it up might not be a big loss after all.

Keywords: monetary policy transmission, Structural VAR, Bayesian estimation, exchangeable prior.

Suggested Citation

Jarocinski, Marek, Responses to Monetary Policy Shocks in the East and the West of Europe: A Comparison (July 28, 2009). CASE Network Studies and Analyses No. 287, Available at SSRN: https://ssrn.com/abstract=1440265 or http://dx.doi.org/10.2139/ssrn.1440265

Marek Jarocinski (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6414 (Phone)

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