Evolution of Monetary Policy in Transition Economies

The last decade of the 20th century brought about many economic and financial changes in the economies of former communist countries. This article provides an overview of the developments that took place in financial markets, institutions, and monetary policies of three of the most advanced transition economies: the Czech Republic, Hungary, and Poland. After examining the evolution of monetary policy in each country, the authors highlight the problems that monetary authorities have faced in these countries and describe the current approach to managing inflation. The authors state that although monetary policy has made a significant contribution to stabilization, the relative newness and fragility of these countries' markets and institutions remains a concern because of the heavy burden placed on monetary authorities in the battle to reduce inflation. They caution that it will be important to continue to strengthen the capital market in these countries and to provide more active fiscal policy support for monetary policy.