The aim of this article is to examine the actual degree of monetary policy independence in a small open economy with floating exchange rate that is integrated with the world economy. It is frequently argued that for such a country the primary cost of participation in a currency area is the loss of monetary policy independence. The article raises the question if the proposition of monetary independence provided by floating exchange rate applies to a small open economy, operating within highly liberalised capital flows and highly integrated financial markets. We examine the actual degree of monetary policy independence in Poland using a vector error correction mechanism model and the data for the years 2001-2014. We obtain evidence pointing to the lack of such independence, and we show that this result is robust to extensive changes in specification, including impulse saturation. Keywords Small open economy · Monetary policy independence · Monetary union · Poland JEL Classification

In this article, we investigate the actual level of monetary policy independence in the Czech Republic. We formulate the research agenda in terms of the Euro Dominance Hypothesis. The situation of the non-euro EU countries with derogation in terms of joining the EMU, like the Czech Republic, is similar to the pre-euro situation of the euro area countries, in which the problem of the stability of the European Mechanism System was predominant. We investigate the co-movement of interest rates between the Czech Republic and the Eurozone to assess the potential costs of monetary integration. Using cointegration and VECM methods we show that the ECB monetary policy influences monetary policy in the Czech Republic and the actual level of monetary independence in the Czech Republic is much lower than it is presumed. Therefore, we argue that for the Czech Republic the cost of the joining the EMU will be lower than expected.

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