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

Author/Editor:

Susan M Schadler ; Adam Bennett

Publication Date:

September 1, 1992

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 92/68

Subject:

English

Publication Date:

September 1, 1992

ISBN/ISSN:

9781451848946/1018-5941

Stock No:

WPIEA0681992

Format:

Paper

Pages:

38

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