Money Rules for the Eurozone Candidate Countries

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Abstract:This study proposes the adoption of money growth rules as indicator variables of monetary policies by the countries converging to a common currency system, in particular, by the eurozone candidate countries. The analytical framework assumes an inflation target as the ultimate policy goal. The converging countries act in essence as "takers" of the inflation target, which, in this case, is the eurozone's inflation forecast. The study advances a forwardlooking money growth model that might be applied to aid monetary convergence to the eurozone. However, feasibility of adopting money growth rules depends on stable relationships between money and target variables, which are low inflation and stable exchange rate. Long-run interactions between these variables are examined for Poland, Hungary and the Czech Republic by employing a Johansen cointegration test, along with short-run effects assessed with a vector error correction procedure. JEL classification: E42, E52, F36, P24

Long-Run Money Demand in the New EU Member States with Exchange Rate Effects

“…Conversely, if the opportunity cost measures the earnings of alternative assets, its coefficient should be negative. 3 The interest rate variable includes via the Fisher effect the inflation rate of these countries (see Orlowski, 2004). At least for most industrial countries,…”

“…Buch (2001), Komarék and Melecký (2001) and Orlowski (2004) in the sense that the US dollar exchange rate is an important variable to be considered in money demand analysis for these countries. This is in line with the fact that euro coins and notes have only entered into circulation in January 2002.…”

“…Estonia, Lithuania and Cyprus which moved to a peg to the euro before joining ERM II), before 1999 it was constituted by its legacy currencies. In contrast to Orlowski (2004), the exchange rates vis-à-vis the US dollar is necessary to obtain a cointegration relationship.…”

“…Buch, 2001 andOrlowski, 2004) include in the money demand function of some of the new EU Member States also the exchange rate against the euro. However, the overall effect of the exchange rate on money holdings is not entirely clear-cut.…”

Pilgrims to the Eurozone: How far, how fast?

“…The gradual adjustment process begins with a relatively strict variant of inflation targeting, followed by flexible inflation targeting, and ends with exchange rate targeting. Orlowski (2004) proposed the adoption of money growth rules as indicator variables of monetary policies by the countries converging to a common currency system, in particular by the Eurozone candidate countries. The analytical framework assumes an inflation target as the ultimate policy goal.…”