Transformations  in
Business & Economics

EFFICACY OF THE SINGLE MONETARY POLICY FOR THE BALTIC COUNTRIES AND SLOVENIA¹
Marianna Sinicakova, Benedict E. Alechenu, Srdjan Redzepagic

ABSTRACT. The purpose of this paper is to evaluate the efficacy of the single monetary policy for the Baltic countries (Estonia, Latvia, and Lithuania) and Slovenia as relatively new members of the euro area which can be a guideline for other potential candidates in their integration process. Evaluation is performed via quantification of monetary rules prior and after the introduction of the euro using linear regression with the Newey-West approach. Calculations are based on the traditional Taylor rule and several alternatives of Taylor-type rules. Our findings confirm that the national interest rate of chosen countries was more responsive to country inflation and output gap comparing to later applied common European interest rates. Results were slightly better in case of inflation than output, Taylor principle was violated putting the countries at the risk of deflation in the future. Nevertheless, several arguments assigning possibilities of positive impacts of single monetary policy for new member states in future are identified.

KEYWORDS:  European Economic and Monetary Union, monetary policy, monetary rules, Slovenia, Baltic Countries.

JEL classification:  E44, E52, F36.

¹Acknowledgements:  The paper was elaborated within the project VEGA 1/0793/19.