Catching-up Strategies in CESEE Economies
Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 9: Monetary Policy and Financial Stability: What’s Ahead for Central and Eastern Europe
Stephen G. Cecchetti1 This chapter describes the monetary policy and financial stability challenges facing Central and Eastern Europe (CEE) after the crisis. I will begin with a description of the current global monetary policy environment and its effects on emerging market economies. Following this, I will briefly comment on ongoing regulatory reforms and their potential impact on credit supply. And finally, I will turn to what this all means for monetary policy and financial stability in Central and Eastern Europe. My main message is that monetary policy in this region is in a period of transition. Existing policy frameworks have performed relatively well during the crisis. Contrary to widespread expectations, there have been no currency collapses and no banking crises. And, at the time of writing, the recovery is proceeding gradually and inflation is low. That said, the landscape for monetary policy and financial stability in other emerging market economies (EMEs) has changed considerably over the past few years. Having weathered the severe financial stress and the impact of a steep decline in global demand, emerging markets in Asia and Latin America are once again confronting issues similar to those they faced before the bankruptcy of Lehman Brothers in September 2008. Capital flows are back and policy makers are focusing on managing the consequences of these inflows – as well as the inflows themselves. Although the challenges faced by Brazil, Korea or Thailand may seem remote, I will argue that policy makers in the CEE region need to prepare as their...
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