Jun
29
2011
It’s been quite some time since I started studying Moldovan monetary phenomena. Before diving into the long list of unanswered questions, let me summarize my humble findings. So, the things I know:
- National Bank of Moldova is targeting inflation (just as it declared).
- Although officially MDL is a [dirty] floating currency, National Bank of Moldova implicitly maintains a soft peg to the US dollar. Theoretically, doing so makes it more difficult for the NBM to [efficiently] target inflation.
- Moldova’s capital account is far from being liberalized. From the point of view of the “impossible trinity”, imperfect cross-border mobility of capital allows monetary authorities to enjoy exchange rate stability and monetary independence at the same time.
The things I do not know are more numerous.
- The parameters of the peg — the rate of depreciation, exchange rate variability etc. — changed over time, but regime changes could not be associated with any known events. What caused these regime switches?
- Contrary to expectations, the euro has no significant weight in the peg. Why a dollar peg?
- NBM neither announces, nor reports about it’s foreign exchange interventions. Only monthly data on interventions are available. What is the objective of these transactions — “maintain the trend”, “return to the trend”, “reverse the trend”, “increase the official reserves”, or? Why are the interventions performed in a secret manner? What is the objective of pegging, in general — to protect official reserves, to protect forex-denominated investments, to secure forex-denominated liabilites, to stimulate foreign trade, or?
- What is the relationship between exchange rates and domestic prices? A conventional wisdom suggests that the pass-through of exchange rates to import prices, and further to inflation, must be very high.
- Is monetary policy really independent? Is there an explicit policy function? Does it include exchange rates?
