2004-09 Does money matter in the CIS? effects of monetary policy on output and prices

In large industrial economies, changes in monetary policy affect real economic activity in the short-run, but in the long run affect only prices. In transition economies, little is known about whether monetary policy has such short-run effects: if so, maintaining independent policy preserves options of stimulating the economy when it is sluggish or cooling it down if it overheats -- but if not, other sorts of policy régimes that entail strong commitment to price stability may be more attractive, such as a monetary union, a currency board, or ‘dollarization’. This paper uses time-series methods to examine real effects of monetary policy in Russia, Ukraine, Belarus, and Kazakhstan. There is only mixed evidence that ‘money matters’ in these countries, although its potential seems greater in Russia than elsewhere. This suggests a limited scope for activist use of monetary policy, at least in the near-term.