ABSTRACT
Economists may agree that monetary policy affects inflation and real economic activity, but their views on the chain of reactions from monetary policy impulses differ considerably. Transition economies represent a special group of emerging markets, that of countries transforming a centrally planned structure into a market-oriented economy. The effectiveness of transmission in the transitional economies has largely been determined by the level of development of their market economies. Having more or less completed the most painful phase of economic transformation by 2000, the advanced ACs now entered the period of convergence leading to accession to the European Union. Strengthening the credibility of the monetary regime is a key factor in making the transmission more predictable under the changing conditions of transition. If market participants are 'surprised' by policy actions and/or by their outcome, their expectations for the future will be modified according to the deviation of facts from the targets.
