Monetary transmission mechanism in Central and Eastern Europe

Égert, B. and MacDonald, R. (2009) Monetary transmission mechanism in Central and Eastern Europe. Journal of Economic Surveys, 23(2), pp. 277-327. (doi: 10.1111/j.1467-6419.2008.00563.x)

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This paper surveys recent advances in empirical studies of the monetary transmission mechanism, with special attention to Central and Eastern Europe (CEE). Our results indicate that the strength of the exchange rate pass-through substantially declined over time mainly due to a fall in inflation rates and to some extent due to the so-called composition effect. The asset price channel is weak and is likely to remain weak because of shallow stock and private bond markets and because of low stock and bond holdings of domestic households. House prices may become an exception with booming mortgage lending and with high owner occupancy ratios. While the credit channel could be a powerful channel of monetary transmission – as new funds raised on capital markets are close to zero in CEE – it is actually not, as both commercial banks and non-financial corporations can escape domestic monetary conditions by borrowing from their foreign mother companies. The moderately good news, however, is that those banks and firms are influenced by monetary policy in the euro area because their parent institutions are themselves subjected to the credit channel in the euro area.

Item Type:Articles
Glasgow Author(s) Enlighten ID:MacDonald, Professor Ronald
Authors: Égert, B., and MacDonald, R.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Economic Surveys
Published Online:23 December 2008

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