MONETARY-POLICY DURING TRANSITION - PROGRESS AND PITFALLS IN CENTRAL AND EASTERN-EUROPE, 1990-6

Monetary policy rarely accomplished stabilization if sound fiscal poli cy had not already been established. Distinctions between different no minal anchors can be exaggerated Any credit crunch owed more to micro distortions than to fight money. Initial stabilization did not always precede the resumption of growth, but there is little evidence that mo re gradual transition would have made disinflation easier. Thereafter countries usually experienced large capital inflows whatever the osten sible exchange-rate regime. Sterilization, only partly successful, was usually expensive. Fiscal tightening and move exchange-rate flexibili ty offer a sounder eventual response. Poor incentives and corporate go vernance in banks should have been anticipated: subsequent improvement s were slow and costly. Large investments in writing off bad debt and providing adequate resources for supervision made monetary transmissio n more reliable, and hardened budget constraints through which the pri ce mechanism could improve efficiency.