Advertisement

Comparative Economic Studies

, Volume 50, Issue 3, pp 438–459 | Cite as

Advancing Inflation Targeting in Central Europe: Strategies, Policy Rules and Empirical Evidence

  • Lucjan T Orlowski
Symposium Paper

Abstract

This paper analyses the evolution of inflation targeting policies in Central European countries. The origins of their inflation targeting strategies are examined, above all the commitment to price stability as well as the inability of prior policy regimes to engender financial stability. Recent policy modifications toward greater flexibility of inflation targeting are reviewed and a system of targeting the differentials between the domestic and the euro area inflation forecast is advocated as conducive to achieving euro-convergence.

Keywords

inflation targeting monetary convergence euro adoption EU new member states 

JEL Classifications

E42 E52 F36 P24 

References

  1. Ball, L . 1999: Policy rules for open economies. In: Taylor, J (ed). Monetary Policy Rules. University of Chicago Press: Chicago, IL pp. 127–156.Google Scholar
  2. Bernanke, BS, Laubach, T, Mishkin, FS and Posen, AS . 1999: Inflation Targeting: Lessons from the International Experience. Princeton University Press: Princeton, NJ.Google Scholar
  3. Brada, J and Kutan, AM . 1999: The persistence of moderate inflation in the Czech Republic and the koruna crisis of May 1997. Post-Soviet Geography and Economics 40 (2): 121–134.Google Scholar
  4. Bruno, M . 1992: Stabilization and reform in Eastern Europe: a preliminary evaluation. IMF Staff Papers 39 (4): 741–777.CrossRefGoogle Scholar
  5. Christoffersen, PF, Sløk, T and Wescott, RS . 2001: Is inflation targeting feasible for Poland? The Economics of Transition 9 (1): 153–174.CrossRefGoogle Scholar
  6. Christoffersen, PF and Wescott, RS . 1999: Is Poland ready for inflation targeting? International Monetary Fund Working Paper No. WP/99/41, Washington, DC.Google Scholar
  7. Corker, RJ, Beaumont, C, vanElkan, R and Iakova, D . 2000: Exchange rate regimes in selected advanced transition economies: coping with transition, capital inflows, and EU accession. Policy Discussion Paper No. 2000/3, International Monetary Fund.Google Scholar
  8. Eichengreen, BL . 2005: Can emerging markets float? Should they inflation target?. In: Driver, RL, Sinclair, PJN and Thoenissen, C (eds). Exchange Rates, Capital Flows and Policy. Routledge Publ. Co.: London pp. 10–38.Google Scholar
  9. Frankel, J, Schmukler, SL and Servén, L . 2004: Global transmission of interest rates: Monetary independence and currency regime. Journal of International Money and Finance 23 (5): 701–733.CrossRefGoogle Scholar
  10. Golinelli, R and Rovelli, RR . 2002: Painless disinflation? Monetary policy rules in Hungary, 1991–1999. Economics of Transition 10 (1): 55–91.CrossRefGoogle Scholar
  11. Golinelli, R and Rovelli, RR . 2005: Monetary policy transmission, interest rate rules and inflation targeting in three transition countries. Journal of Banking and Finance 29 (1): 183–201.CrossRefGoogle Scholar
  12. Halpern, L and Wyplosz, CA . 1997: Equilibrium exchange rates in transition economies. IMF Staff Papers 44 (4): 430–461.CrossRefGoogle Scholar
  13. Jarmuzek, M, Orlowski, LT and Radziwill, A . 2004: Monetary policy transparency in inflation targeting countries: The Czech Republic, Hungary and Poland. CASE – Center for Economic and Social Research Working Paper No. 281, Warsaw.Google Scholar
  14. Jonas, J . 2006: Euro adoption and Maastricht criteria: Rules or discretion? Economic Systems 30 (4): 328–345.CrossRefGoogle Scholar
  15. Jonas, J and Mishkin, FS . 2005: Inflation targeting in transition economies: Experience and prospects. In: Bernanke, BS and Woodford, M (eds). The Inflation-Targeting Debate. University of Chicago Press: Chicago pp. 353–413.Google Scholar
  16. Kenen, P and Meade, EE . 2003: EU accession and euro: Close together or far apart? International Policy Briefs No. PB03–9, Institute for International Economics.Google Scholar
  17. King, MA . 1996: How should central banks reduce inflation? – Conceptual issues. In: New Challenges for Monetary Policy – A Symposium sponsored by the Federal Reserve Bank of Kansas City, Kansas City, Missouri, pp. 53–92.Google Scholar
  18. King, MA . 2005: Monetary policy: Practice ahead of theory. City University London, Cass Business School – Mais Lecture, May 17, 2005.Google Scholar
  19. Kočenda, E, Kutan, AM and Yigit, TM . 2006: Pilgrims to the Eurozone: How far, how fast? Economic Systems 30 (4): 311–327.CrossRefGoogle Scholar
  20. Kočenda, E and Valachy, J . 2006: Exchange rate volatility and regime change: Visegrad comparison. Journal of Comparative Economics 34 (4): 727–753.CrossRefGoogle Scholar
  21. Kuttner, KN . 2004: The role of policy rules in inflation targeting. Federal Reserve Bank of St. Louis Review 86 (4): 89–111.Google Scholar
  22. Matoušek, R and Taci, A . 2003: Direct inflation targeting and nominal convergence: The Czech case. Open Economies Review 14 (3): 269–283.CrossRefGoogle Scholar
  23. Mishkin, FS . 2000: Inflation targeting in emerging-market countries. The American Economic Review: AEA Papers and Proceedings 90 (2): 105–109.CrossRefGoogle Scholar
  24. National Bank of Slovenia. 2004: Monetary programme of the NBS until the year 2008. Bratislava, December.Google Scholar
  25. Orlowski, LT . 2001: From inflation targeting to the euro-peg: A model of monetary convergence for transition economies. Economic Systems 25 (3): 233–251.CrossRefGoogle Scholar
  26. Orlowski, LT . 2003: Monetary convergence and risk premiums in the EU accession countries. Open Economies Review 14 (3): 251–267.CrossRefGoogle Scholar
  27. Orlowski, LT . 2004: Money rules for monetary convergence to the euro. Journal of Policy Modeling 26 (7): 817–837.CrossRefGoogle Scholar
  28. Orlowski, LT . 2005a: Monetary convergence of the EU accession countries to the eurozone: A theoretical framework and policy implications. Journal of Banking and Finance 29 (1): 203–225.CrossRefGoogle Scholar
  29. Orlowski, LT . 2005b: Targeting relative inflation forecast as monetary policy framework for adopting the euro. William Davidson Institute Working Paper No. 754, University of Michigan School of Business.Google Scholar
  30. Orlowski, LT and Rybinski, K . 2006: Implications of ERM2 for Poland's monetary policy. Economic Systems 30 (4): 346–365.CrossRefGoogle Scholar
  31. Roger, S and Stone, M . 2005: On target? The international experience with achieving inflation targets. Working Paper No. WP/05/163, International Monetary Fund.Google Scholar
  32. Siklos, PL and Ábel, I . 2002: Is Hungary ready for inflation targeting? Economic Systems 26 (4): 303–333.CrossRefGoogle Scholar
  33. Svensson, LEO . 1999: Inflation targeting as a monetary policy rule. Journal of Monetary Economics 43 (3): 607–654.CrossRefGoogle Scholar
  34. Svensson, LEO . 2000: Open-economy inflation targeting. Journal of International Economics 50 (2): 155–183.CrossRefGoogle Scholar
  35. Svensson, LEO . 2003: What is wrong with Taylor rules?: Using judgment in monetary policy through targeting rules. Journal of Economic Literature 41 (2): 426–477.CrossRefGoogle Scholar
  36. Svensson, LEO and Woodford, M . 2004: Indicator variables for optimal policy under asymmetric information. Journal of Economic Dynamics and Control 28 (4): 661–690.CrossRefGoogle Scholar

Copyright information

© Palgrave Macmillan Ltd 2008

Authors and Affiliations

  • Lucjan T Orlowski
    • 1
  1. 1.Department of Economics and FinanceSacred Heart UniversityFairfieldUSA

Personalised recommendations