Capital Flow Bonanzas and Monetary Policy in Emerging Europe: Responses to the Global Financial Crisis

Résumé 0

We analyse the conduct of monetary policy in some new member states of the EU and some EU candidates over the period 2000–13. We investigate why monetary policy has been ineffective in insulating domestic liquidity from capital inflows and why some countries from emerging Europe have been especially constrained in responding to the crisis. Our contribution is threefold. First, we show that countries with fixed exchange rate regimes have encountered significant obstacles to conducting monetary policy to cope with large capital inflows and credit booms during the period preceding the financial crisis. Second, we illuminate how pegged countries have been more constrained in responding to the global financial crisis than non-pegged economies. Third, countries with high currency mismatch and financial vulnerabilities seem unable to adopt monetary policy dedicated only to macroeconomic stabilisation