Interest Rate Policy in Central and Eastern Europe: The Influence of Monetary Overhangs and Weak Enterprise Discipline

38 Pages Posted: 15 Feb 2006

See all articles by Adam Bennett

Adam Bennett

affiliation not provided to SSRN

Susan Schadler

International Monetary Fund (IMF)

Date Written: August 1992

Abstract

Interest rate policy in the newly reforming Central and Eastern European countries has generally been geared toward establishing positive real interest rates and defending the exchange rate. The principal instrument for this task has been administrative increases in controlled interest rates. This paper examines the effect of these adjustments on inflation, the real interest rate and the exchange rate. It points out the risk that when financial discipline over enterprises is weak raising nominal interest rates may do little more than raise credit growth, the rate of depreciation and ultimately inflation. Simulations attempt to shed light on the importance of these linkages.

JEL Classification: E52, E61, E65

Suggested Citation

Bennett, Adam and Schadler, Susan, Interest Rate Policy in Central and Eastern Europe: The Influence of Monetary Overhangs and Weak Enterprise Discipline (August 1992). Available at SSRN: https://ssrn.com/abstract=884933 or http://dx.doi.org/10.2139/ssrn.884933

Adam Bennett (Contact Author)

affiliation not provided to SSRN

No Address Available

Susan Schadler

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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