Monetary Policy Transmission in Euroized Countries: Evidence from Emerging Europe

IMF Working Papers, September 5, 2025

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Canonical URL: Monetary Policy Transmission in Euroized Countries: Evidence from Emerging Europe

Authors: Wentong Chen, Fazurin Jamaludin, Florian Misch, Alex Pienkowski, Mengxue Wang, Zeju Zhu
Published: September 5, 2025
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798229021258.001

The impact of domestic monetary policy shocks on both inflation and GDP diminishes with the degree of euroization across countries.
"The effects are twice as high in non-euroized countries compared to countries in our sample with the highest level of euroization."
Domestic monetary policy has at best limited effects on the exchange rate in euroized economies.
During the post-pandemic monetary tightening episodes, an increase in foreign-currency loans often softened the decline in overall credit growth.
Rates of foreign-currency loans have followed the ECB policy rate rather than the domestic ones.
The pass-through to interest rates of domestic currency loans is similar across countries with different levels of euroization.

Exchange rate channel
- Domestic monetary policy shows limited effectiveness in affecting the exchange rate in euroized economies.
Credit channel
- Foreign-currency lending played a cushioning role during post-pandemic tightening: increases in foreign-currency loans often softened declines in overall credit growth.
Interest rate channel
- Rates of foreign-currency loans track the ECB policy rate rather than domestic policy rates.
- Pass-through to interest rates on domestic-currency loans is similar across countries regardless of euroization level.

Focus: European countries with a significant share of lending and deposits in foreign currency, referred to as "euroized economies".
Subject keywords explicitly used: Central bank policy rate; Currencies; domestic monetary policy; Emerging markets; Euroization; Europe; Exchange rates; foreign-currency loan; interest rate transmission channels; Loans; monetary policy shock; Monetary policy transmission; Mortgages.