Economic Models - Convex Optimization

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Inflation Control in Central and Eastern European Countries 193 Although they are all small open economies, a pattern can be envisaged in terms of dimension and openness to international trade, and this is reflected in the estimated models: Poland, is the only country in which the international factors did not affect the AD. Another way to appreciate the importance of the international openness is to look at the estimated effect of a 1% appreciation of the exchange rate: the impact on the inflation dynamics is clearly ranked according to the relative dimension of trade. Stability analysis is also important because it allows us to understand if the switch in Poland and in Czech Republic from exchange rate to inflation targeting affected the price setting formation. We did not find any evidence of it, nor we found that a more aggressive exchange rate policy in Slovenia eased the costs of disinflation from 2001 onwards. The instability that we found for Czech Republic seems to suggest an evolution of the macroeconomic structure towards a market economy, and should then have more to do with EU accession than with inflation targeting. One main implication that we perceive is that the exchange rate commitment is either irrelevant or, more likely, replaceable with inflation targeting as a nominal anchor. We think that this conclusion is of particular interest to help choosing the monetary target for the period preceding the last two years before fixing the exchange rate in the ERM2: inflation targeting should be preferred and ERM2 membership should only be limited to the two mandatory years. We also think that this lesson can be extended to other emerging market economies, and that inflation targeting, rather than explicit exchange rate commitment, should be preferred, especially if strict capital controls are not in place. References Amato, JD and S Gerlach (2002). Inflation targeting in emerging market and transition economies: lessons after a decade. European Economic Review 46, 781–790. Capriolo, G and V Lavrac (2003). Monetary and exchange rate policy in Slovenia. Eastward Enlargement of the Euro-Zone Working Papers, 17G. Berlin: Free University Berlin, Jean Monnet Centre of Excellence, 1–35. Coricelli, F and B Jasbec (2004). Real exchange rate dynamics in transition economies. Structural Change and Economic Dynamics 15, 83–100. Dvorsky, S (2000). Measuring central bank independence in selected transition countries and the disinflation process. Bank of Finland, Bofit Discussion Paper 13. Helsinki: Bank of Finland, 1–14. Iacone, F and R Orsi (2004). Exchange rate regimes and monetary policy strategies for accession countries. In Fiscal, Monetary and Exchange Rate Issues of the Eurozone Enlargement, K Zukrowska, R Orsi and V Lavrac (eds.), pp. 89–136. Warsaw: Warsaw School of Economics. Maliszewski, WS (2000). Central bank independence in transition economies. Economics of Transition 8, 749–789.
194 Fabrizio Iacone and Renzo Orsi Rudebush, GD and LEO Svensson (1999). Policy rules for inflation targeting. In Monetary Policy Rules, John B Taylor (ed.), pp. 203–246. Chicago: Chicago University Press. Rudebush, GD and LEO Svensson (2002). Eurosystem monetary targeting: lessons from U.S. data. European Economic Review 46, 417–442. Svensson, LEO (2000). Open-economy inflation targeting. Journal of International Economics 50, 155–183. Appendix A Summary of the Results Note to the Tables: for each equation, N indicates the normality test, AC is the LM test of no autoregressive structure in the residuals and H is the test for the heteroskedasticity; W indicates the test of those restrictions that reduce the corresponding equation as specified in general to the one specifically used. For each test, we report the P-value: the small sample version of the test is taken, unless normality is rejected. When the estimated equation is restricted, the test statistics N, AC, H, Chow, W are calculated in the unrestricted model. Table 1a. Germany. AD [sample: 91Q2–04Q1] ŷ t = 0.011 + 0.769 yt −1 − 0.038r t−1 [N: 0.38] [AC: 0.20] [H: 0.17] PC [sample: 93Q1–04Q1] ˆπ t =−1.02π t−1 − 0.86π t−2 − 0.71π t−3 + 17.62y t−2 [N: 0.00] [AC: 0.24] [H: 0.10] [Chow: 0.18] [W: 0.44]
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ECONOMIC MODELS Methods, Theory and
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ECONOMIC MODELS Methods, Theory and
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This Volume is Dedicated to the Mem
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Contents Tom Oskar Martin Kronsjo:
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Tom Oskar Martin Kronsjo: A Profile
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Tom Oskar Martin Kronsjo students t
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About the Editor Prof. Dipak Basu i
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Contributors Athanasios Athanasenas
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Contributors Victoria Miroshnik, is
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xx Introduction type of model is ve
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Economic Models - Convex Optimization

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