engleski

The Determinants of Intermediate Targets Choice of Monetary Policy Strategy: The Case of CEE Countries

The main motivation for this paper was the scarcity of empirical research and evidences on the characteristics of the countries depending on their choice of intermediate target of monetary strategy. Today’s most common choice refers to inflation targeting, exchange rate targeting and monetary targeting. This paper reviews the fundamental characteristics of these three strategies and analyzes currently adopted strategies in central and east European countries. Furthermore, paper analyzes what are the main determinants of the choice i.e. what characterizes the countries that have chosen individual target. Finally, using discriminant analysis the paper concludes that characteristics of inflation targeting and exchange rate targeting countries do differ, particularly in terms of exchange rate regimes, external debt, loans in foreign currency or loans denominated in foreign currency, central bank independence and level of bank domination in financial system. Due to negative consequences of some of these characteristics, an explicit inflation target is proposed as an alternative regime for some economies.

monetary strategy; intermediate target; CEE countries

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