OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
Monetary Transmission Mechanism in Central and Eastern Europe: Surveying the Surveyable
This paper surveys recent advances in empirical studies of the monetary transmission mechanism
(MTM), 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 household. House prices may become an exception with higher levels 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 is, however, 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.
Keywords: credit channel, Central Europe, interest rate pass-through, asset prices, monetary transmission mechanism, exchange rate pass-through, interest rate
JEL:
F31: International Economics / International Finance / Foreign Exchange;
O11: Economic Development, Innovation, Technological Change, and Growth / Economic Development / Macroeconomic Analyses of Economic Development;
E31: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Price Level; Inflation; Deflation;
E51: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Money Supply; Credit; Money Multipliers;
E58: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Central Banks and Their Policies;
P20: Economic Systems / Socialist Systems and Transitional Economies / Socialist Systems and Transitional Economies: General
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