Monetary Policy Rules in Transition Economies
Monetary Policy Rules in Transition Economies

Summary/Abstract: This paper discusses the potential benefi ts of monetary policy rules for transition economies [TEs]. It is argued that the nominal interest rate may fail to be the appropriate instrument in such rules. One reason is the amount of non-calculable political and economic risk inherent in TEs. These risks lead to a signifi cant and volatile ambiguity premium in the interest rate over and above the normal risk premium, which makes the real equilibrium interest rate diffi cult to measure. A simple monetary policy rule based on a monetary aggregate like the money base minimizes the impact of ambiguity and may therefore be the appropriate monetary policy in TEs

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