The doctoral thesis: „The impact of the European Central Bank monetary policy on the convergence process“, analyzes relevant theoretical and practical issues related to the European Central Bank ...monetary policy. The thesis has several objectives. Serbia and other countries from Central and Eastern Europe are facing a multitude of problems. Major causes of these problems are the flaws in economic policy, especially monetary and fiscal policy. Therefore, these countries often see the adoption of monetary policy from strong and stable countries as a way out. Many European countries look to the European Central Bank as the candidate, i.e. they look to adopt the monetary policy from the European Monetary Union. This objective was clearly articulated by every country whose main strategic goal was to join the European Union, as well as European monetary union later on. It is, however, debatable whether this solution would yield long-term benefits for the countries in transition. Recent events have shown that single monetary policy hasn’t been capable of properly addressing the problems of member states. The question is if the policy can be more flexible and accommodate for regional differences in development of the existing European 27-nation bloc, which is slated to be enlarged even further. The primary objective of the thesis is to establish whether the convergence of economic performances of member states took place in the EMU and what was the impact of single monetary policy on that process. At the time of the establishment of EMU, the prevailing opinion was that the environment of a monetary union, the single currency, intense intratrade and interlacing financial flows will lead to the convergence of economic cycles of member states, as well as their economic performances, i.e. that the member states will move towards the optimal currency area. Another objective of the thesis is to test the performance of ECB monetary policy and its effectiveness in achieving its main objective, conduct a critical analysis of the objective itself, evaluate its formulation, as well as to conduct a critical analysis of strategies used by the ECB. In addition, the paper analyzes and compares selected countries from Central and Southeast Europe with the EMU average. The baseline criteria for the selected countries were identical or similar. These are all countries in transition and former transition countries that underwent the process of substantial transformation and serious reforms during the last decade. Slovenia and Slovakia have made the biggest progress and have become a part of European Monetary Union. Therefore it’d be useful to know the extent to which they really integrated into the EMU and how similar is their performance to other EMU members. Czech Republic, Poland and Hungary joined EU in 2004 and have yet to meet the Maastricht criteria. Rumania and Bulgaria joined EU in 2007 and have the highest number of macroeconomic problems and are the farthest away from meeting the convergence criteria. Croatia is in the process of EU accession and is expected to join in July 2013. Candidate countries - Serbia, Macedonia and Montenegro (as well as Turkey and Iceland) are seeking to join the EU. Serbia is at the very beginning of the path to EMU and just started with macroeconomic reforms and should be able to draw conclusions about the requirements and reforms that have to be carried out, from experiences of aforementioned countries – how far along in the convergence process are they, which problems have they encountered, the extent to which their economies are ready for the single monetary policy. Another objective of this paper, based on the analysis of monetary policy strategies and exchange rate regimes in the neighbouring countries that made significant progress towards EMU, is to make a recommendation for NBS monetary policy that will lead towards EMU convergence – specifically, which monetary policy strategy and which exchange rate regime had a better effect on macroeconomic results. Serbia is a country burdened by many macroeconomic imbalances. There is a multitude of issues in the monetary sphere as well – high degree of Euroisation, particularly high and fluctuating inflation, high inflationary expectations, high depreciation and a particularly fluctuating dinar exchange rate. Consequently, it is debatable if the current strategy of inflation targeting in Serbia is the best solution or if it would be better to use formal NBS focusing on the exchange rate. Various statistical and econometric methods were used in this paper, due to the complexity of the subject. The dispersion index – standard deviation and coefficient of variation was used as a starting point in the convergence analysis. This analysis is confirmed by sigmaconvergence tests, based on regression of standard deviation. The results achieved in terms of price stability have been established with descriptive inflation statistics, analysis of autoregressive inflation model, as well as autoregressive inflation rate coefficient. Granger causality test for various lagged values was applied in order to analyze joint dynamics of inflation rates, changes in M3 monetary aggregate and ECB reference rate. Correlation coefficients and cross correlation coefficients were used to measure the correlation between relevant variables. Based on the regression analysis of inflation in Serbia, we examined the effects of dynamics of monetary aggregates and foreign exchange rates on inflation rates; also, regression analysis on the effects of the reference rate change on inflation has been carried out. In addition, the paper analyses the effects of high Euroisation in Serbia on monetary policy effectiveness. The regression analysis was used here, with the six month EURIBOR and the NBS two-week repo rate as the independent variables, and the corporate loans and personal loans, as well as demand deposits and time deposits as the dependent variables. European Monetary Union is characterized by a number of systemic weaknesses, one of which is the insistence on neoliberal principles, no matter the cost and even in matters related to the ECB. Price stability is its main objective, while growth and employment are supplementary objectives. Although the average inflation in the Euro zone is low, inflation differentials are still present. This is one of the main reasons for increasing divergence in performances of member states and for the evident polarization process in the Monetary Union. There is no single fiscal policy to counter the single monetary policy. Fiscal policy remains at the national level and provides the Governments with the ability to respond to various economic shocks. Southern member states relied on expansive fiscal policy, while the growth model was based on high demand, financed with the cheap capital of the more successful „Northern“ member states. This resulted in large balance of payments deficits, budget deficits and increasing difficulty in loan servicing. The crisis has revealed major weaknesses in the functioning of EMU. It wasn’t an optimal currency area to begin with, nor has it moved towards it, although it is considered to be a prerequisite for successful implementation of single monetary policy. The existing difference in labour costs and productivity of factors of production has increased the gap in competitiveness and deepened the division between „the poor South and the rich North“. The financial markets also failed to do their job by relying on the full convergence scenario – because the approximation of interest rates on sovereign debts of member states occurred, despite large macroeconomic differences. The crisis caused a large scale intervention by the ECB, who deviated from basic principles of its monetary policy and acted as a lender of last resort for banks and other financial institutions, without which the transmission process of monetary policy would’ve been interrupted, as well as on the public debt markets, because otherwise the markets would’ve remained closed for some countries. Even though in practice, the strategy of inflation targeting failed to achieve satisfactory results, it remains the best option for Serbia. Although transition to exchange rate targeting is often advocated, it could have serious consequences for countries with high demand and outflow of foreign currency. On the other hand, due to the specific role of the Euro in Serbia, it wouldn’t be advisable to allow its free fluctuation. NBS should prevent excessive exchange rate fluctuations, without dictating its movement, and always in a transparent and predictable manner. A major challenge for the NBS in the future will be to decrease the level of Euroisation of the economy. This will impact the efficiency of the reference rate as the main instrument of monetary policy. Although its effect on inflation is statistically significant, its effect on lending and deposit bank activities is not. If Serbia wants to join the EMU, given its numerous macroeconomic imbalances, it will have to undertake many structural reforms in order to find the path to convergence. That means having a healthy, responsible and coordinated fiscal and monetary policies, as well as serious investments in the real sector. In the long run, only a strong real sector of an economy can provide the exchange rate stability, low and stable inflation, and confidence in the local currency.
Doktorska disertacija: „Monetarna politika Evropske centralne banke i njene posledice na proces konvergencije“, za predmet istraživanja postavlja relevantna teorijska i praktična pitanja vezana za monetarnu politiku koju sprovodi Evropska centralna banka. Rad ima više ciljeva. Srbija, kao i druge zemlje Centralne i Istočne Evrope suočene su sa brojnim problemima. Važan uzrok tih problema jesu nedostaci ekonomske politike, pre svega monetarne i fiskalne. Zbog toga se često u ovim zemljama nameće ideja usvajanja monetarne politik
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