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Monetary Transmission in Three Central European Economies: Evidence from Time-Varying Coefficient Vector Autoregressions

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  • Zsolt Darvas

    (Institute of Economics - Hungarian Academy of Sciences, Bruegel-Brussels, Corvinus University of Budapest)

Abstract

This paper studies the transmission of monetary policy to macroeconomic variables in three new EU Member States in comparison with that in the euro area with structural time-varying coefficient vector autoregressions. In line with the Lucas Critique reduced-form models like standard VARs are not invariant to changes in policy regimes. The countries we study have experienced changes in monetary policy regimes and went through substantial structural changes, which call for the use of a time-varying parameter analysis. Our results indicate that in the euro area the impact on output of a monetary shock have decreased in time while in the new member states of the EU both decreases and increases can be observed. At the last observation of our sample, the second quarter of 2008, monetary policy was the most powerful in Poland and comparable in strength to that in the euro area, the least powerful responses were observed in Hungary while the Czech Republic lied in between. We explain these results by the credibility of monetary policy, openness and the share of foreign currency loans.

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  • Zsolt Darvas, 2009. "Monetary Transmission in Three Central European Economies: Evidence from Time-Varying Coefficient Vector Autoregressions," CERS-IE WORKING PAPERS 0913, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:0913
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    2. Oxana Babecká-Kucharèuková, 2009. "Transmission of Exchange Rate Shocks into Domestic Inflation: The Case of the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(2), pages 137-152, June.
    3. Ronald Henry Lange, 2018. "The Monetary Transmission Mechanism in Canada: A Time-Varying Vector Autoregression with Stochastic Volatility," Applied Economics and Finance, Redfame publishing, vol. 5(6), pages 42-51, November.
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    5. Catherine Prettner & Klaus Prettner, 2012. "After Two Decades of Integration: How Interdependent are Eastern European Economies and the Euro Area?," EcoMod2012 4421, EcoMod.
    6. Arratibel, Olga & Michaelis, Henrike, 2013. "The Impact of Monetary Policy and Exchange Rate Shocks in Poland: Evidence from a Time-Varying VAR," Discussion Papers in Economics 21088, University of Munich, Department of Economics.
    7. Hernán Herrera-Echeverri & Jerry Haar & Alexander Arrieta Jiménez & Manuel Araújo Zapata, 2015. "Devaluation, Competitiveness And New Business Formation In Emerging Countries," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 20(03), pages 1-22, September.
    8. Cavicchioli, Maddalena, 2024. "A matrix unified framework for deriving various impulse responses in Markov switching VAR: Evidence from oil and gas markets," The Journal of Economic Asymmetries, Elsevier, vol. 29(C).
    9. Baxa, Jaromír & Horváth, Roman & Vašíček, Bořek, 2014. "How Does Monetary Policy Change? Evidence On Inflation-Targeting Countries," Macroeconomic Dynamics, Cambridge University Press, vol. 18(3), pages 593-630, April.
    10. Sebastian Coralia Emilia POPA, 2017. "Quantification model of the consequences of monetary policy shocks," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(19), pages 122-128, November.
    11. Oleksandr Zholud & Volodymyr Lepushynskyi & Sergiy Nikolaychuk, 2019. "The Effectiveness of the Monetary Transmission Mechanism in Ukraine since the Transition to Inflation Targeting," Visnyk of the National Bank of Ukraine, National Bank of Ukraine, issue 247, pages 19-37.
    12. Herrera-Echeverri Hernán & Haar Jerry & Salazar-Duque Juan Guillermo, 2017. "Private Equity and Devaluation in Emerging Countries," Global Economy Journal, De Gruyter, vol. 17(1), pages 1-26, March.
    13. Michal Franta & Roman Horvath & Marek Rusnak, 2014. "Evaluating changes in the monetary transmission mechanism in the Czech Republic," Empirical Economics, Springer, vol. 46(3), pages 827-842, May.
    14. Holger Gorg & Laszlo Halpern & Balazs Murakozy, 2010. "Why Do Within Firm-Product Export Prices Differ across Markets?," CERS-IE WORKING PAPERS 1003, Institute of Economics, Centre for Economic and Regional Studies.
    15. Michal Franta, 2011. "Identification of Monetary Policy Shocks in Japan Using Sign Restrictions within the TVP-VAR Framework," IMES Discussion Paper Series 11-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
    16. Kateřina Myšková & David Hampel & Anna Dobešová, 2013. "Impulse-response analysis of monetary policy - Visegád group countries case," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(7), pages 2561-2567.
    17. Andras Simonovits, 2010. "Tax Morality and Progressive Wage Tax," CERS-IE WORKING PAPERS 1005, Institute of Economics, Centre for Economic and Regional Studies.
    18. Stepan Oana Maria & Lungu Mircea-Alexandru, 2015. "The financing of economic growth in Romania by the atraction and usage of structural founds," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 1(43), pages 289-298.
    19. Oxana Babecka Kucharcukova & Michal Franta & Dana Hajkova & Petr Kral & Ivana Kubicova & Anca Podpiera & Branislav Saxa, 2013. "What We Know About Monetary Policy Transmission in the Czech Republic: Collection of Empirical Results," Research and Policy Notes 2013/01, Czech National Bank.
    20. Balcilar, Mehmet & Kutan, Ali M. & Yaya, Mehmet E., 2017. "Testing the dependency theory on small island economies: The case of Cyprus," Economic Modelling, Elsevier, vol. 61(C), pages 1-11.
    21. Roman Hušek & Tomáš Formánek, 2011. "Srovnání konvergence ekonomik ČR a vybraných zemí eurozóny na základě analýzy funkcí odezvy a nabídkových či poptávkových šoků [Comparing the Convergence of Czech Economy with Selected Euro Zone Me," Politická ekonomie, Prague University of Economics and Business, vol. 2011(3), pages 291-309.
    22. repec:rej:journl:v:16:y:2013:i:47:p:57-74 is not listed on IDEAS
    23. Ghosh, Taniya & Bhadury, Soumya Suvra, 2018. "Has Money Lost Its Relevance? Resolving the Exchange Rate Disconnect Puzzle," MPRA Paper 90627, University Library of Munich, Germany.
    24. Dahem, Ahlem & Skander, Slim & Fatma, Siala Guermazi, 2017. "Time Varying VAR Analysis for Disaggregated Exchange Rate Pass-through in Tunisia," MPRA Paper 79759, University Library of Munich, Germany, revised 2017.
    25. Patricia Amalia MERCEA (HANDRO), 2020. "ANALYSIS OF THE MONETARY POLICY TRANSMISSION INTO CEEs COUNTRIES. A VAR APPROACH," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 5(3), pages 90-102.

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    More about this item

    Keywords

    monetary transmission; time-varying coefficient vector autoregressions; Kalman-filter;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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