Monetary Policy Transmission Mechanisms and Inflation in Slovakia

Abstract

The views expressed in this Working Paper are those of thc author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the aUlhor(s) and are published to elicit comments and to further debate. This paper presents tbe results of an empirical analysis into monetary policy transmission mechanisms and inflation in the Slovak Republic. The estimated vector autoregression (V AR) model suggests tbat inflation is determined by changes in foreign prices, tbe exchange rate, and wage costs, witb a modest effect of aggregate demand, in line with theory for small, open economies. Monetary policy is shown to affect inflation via tbese channels. Changes in money supply seem to have a modest but rapid impact on prices. The measured effect of interest rate changes is modest and gradual, although it appears to have become more important in recent years.

Exchange rate pass-through and monetary policy in Croatia

“…The pass-through appears to be endogenous to different regimes and tends to be smaller when inflation is low, which indirectly confirms the importance of expectations in the transmission mechanism (Choudri and Hakura, 2001). However, Ross (2000) and Kuijs (2002) do not find evidence of low pass-through in transition economies. This result may be due to the lack of credibility of the monetary authorities and to structural elements, e.g., the price-taking nature of domestic firms on international markets.…”

“…He finds a strong linkage between both growth in broad monetary aggregates and changes in the Slovenian tolar-Deutsche mark exchange rate with retail price inflation. Kuijs (2002) analyzes the transmission of monetary policy in the Slovak Republic using a structural VAR based on cointegrating relationships. This analysis shows that the main direct determinants of inflation are foreign prices, the exchange rate, and wage costs, while the impact of monetary aggregates and interest rates is limited at best.…”

Monetary Policy Transmission Mechanisms in the CEECs: How Important are the Differences with the Euro Area?

“…23 Notably Anzuini and Levy (2004), Borhijs and Kuijs (2004), Creel and Levasseur (2004), EFN (2004), Ganev et al (2002), Gunduz (2003), Hericourt and Matei (2004), Jarocinski (2004), and Kuijs (2002. 24 Using the same recursive identification scheme as Anzuini and Levy (2004) (they also perform nonrecursive-Kim (1999)-type identification schemes), on the same sample with the same number of lags, but with our own dataset and the nominal effective exchange rate replacing their commodity price index, we have been unable to replicate their IRFs for Hungary and Poland.…”

“…underdeveloped financial sectors (including the banking one). Nevertheless, some recent studies detect a growing role for both the interest rate and credit channels over the recent years or, at least, conclude in that sense (see, for instance, Gunduz, 2004;Kuijs, 2002).…”

Interest Rate Pass-Through in Romania and Other Central European Economies

“…Such an analysis could follow a VAR methodology, as employed in, e.g., Belaisch (2003), Gueorguiev (2003), or Leigh and Rossi (2002) for exchange rates or Kuijs (2002) for monetary policy transmission mechanisms, but goes beyond the scope of this paper. Note: all series are I(1) at the 5 percent uncertainty level, except Rom_St_Out, which is I(2) and SVN_St_Out and SVN_Pol, which are I(0).…”