BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 20/2005:
Ex-ante dynamics of real effects of monetary policy: Theory and evidence for Poland and Russia, 2001-2003
Wojciech W. Charemza and Svetlana Makarov
Abstract: The paper proposes a new indicator of expected real
effects of a policy aimed at controlling inflation. The indicator, called
real effect of inflation targeting (REIT), involves the comparison of
expected and output-neutral inflation. It is shown that it can be derived
from a simple two-dimensional vector autoregressive model of inflation and
output gap. The microdynamics of such model are explained in terms of the
foundations of Taylor-type staggered wage contracts. It is assumed that the
monetary authority has some discretion regarding the timing of monetary
actions. Here REIT can be used to set the optimal times for such actions,
if the control of output is regarded as a secondary policy target. A
simulation experiment illustrates the rationale of such a device for timing
monetary measures. The REIT has been used by the Polish Monetary Policy
Council since 2001 in it's inflation targeting and is thought to have
contributed to a substantial decline in Polish inflation in 2003 and to an
increase in output growth in 2004. A similar indicator computed for Russia
as a means of monitoring monetary policy rather than as an active tool
confirms that active expansionary policy in 2002 and 2003 might have
contributed to Russian economic growth in 2004 and 2005, whereas similar
policy measures for 2004 are likely to prove ineffective.
32 pages, December 30, 2005
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
dp2005.pdf 
Download Statistics
Questions (including download problems) about the papers in this series should be directed to Päivi Määttä ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
