Template-Type: ReDIF-Article 1.0

Author-Name: Gyorgy Szapary
Author-Workplace-Name: Magyar Nemzeti Bank, Budapest Metropolitan University
Author-Email: szaparygy@mnb.hu
Author-Person: psz20

Author-Name: Balazs Vonnak
Author-Workplace-Name: Magyar Nemzeti Bank, Budapest Metropolitan University
Author-Email: vonnakb@mnb.hu
Author-Person: pvo124

Title: The Impact of Monetary Policy Institutional Decisions on Convergence in Central and Eastern European Countries

Abstract: Our study looks at the role of monetary policy related institutional decisions in
the nominal and real convergence of the 11 former socialist Central and Eastern
European EU Member States over the three decades following their regime change.
We use our empirical model to estimate the impact of four key drivers of the
monetary policy framework (exchange rate regime, central bank independence,
inflation targeting, euro adoption) on inflation and real economic growth. Our main
finding is that the convergence rate over the past decades has had little to do with
the choice of exchange rate regime or the potential adoption of the euro or inflation
targeting and much more with the establishment of central bank independence.
The latter has reduced inflation by roughly 5 percentage points, while boosting
real GDP growth by about 2 percentage points. This suggests that central bank
independence significantly enhances the credibility and predictability of monetary
policy and largely determines the success of each monetary regime.

Classification-JEL: C33, E42, E65, O43
Keywords: monetary policy, convergence, institutions, inflation, economic growth
Pages: 120-152
Volume: 23
Issue: 4
Year: 2024
File-URL: https://hitelintezetiszemle.mnb.hu/sw/static/file/fer-23-4-st7-szapary-vonnak.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:23:y:2024:i:4:p:120-152