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Exchange Rate Policy and Output Growth: The Experience of the Transition Economies of Central and Eastern Europe

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  • Christos Papazoglou

Abstract

This article examines the contribution of exchange rate policy to output growth in the transition economies of Central and Eastern Europe. The analysis identifies two major channels through which the exchange rate affects output. The first is the direct effect which operates on output through its impact on international price competitiveness. The second channel, the indirect one, relies on the close association between disinflation and growth in these countries. That is, to the extent that the exchange rate policy has contributed to lower inflation in these countries it has indirectly caused higher economic growth. The experience of these economies as well as the results of a preliminary empirical analysis strongly suggest that both channels are very important to output growth. In addition, the analysis indicates that a fixed exchange rate regime during the transition process may serve the growth objective better since, to the extent that it is more effective in reducing inflation, it exerts a positive influence on output growth through the direct channel as well.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/14631379995913
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Post-Communist Economies.

Volume (Year): 11 (1999)
Issue (Month): 3 ()
Pages: 319-336

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Handle: RePEc:taf:pocoec:v:11:y:1999:i:3:p:319-336

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  1. Mohsin S. Khan & Dimitri G. Demekas, 1991. "The Romanian Economic Reform Program," IMF Occasional Papers 89, International Monetary Fund.
  2. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  3. Corden, W Max, 1993. "Exchange Rate Policies for Developing Countries," Economic Journal, Royal Economic Society, vol. 103(416), pages 198-207, January.
  4. Peter Montiel & Bijan B. Aghevli & Mohsin S. Khan, 1991. "Exchange Rate Policy in Developing Countries," IMF Occasional Papers 78, International Monetary Fund.
  5. Paul R. Masson & Morris Goldstein & Jacob A. Frenkel, 1991. "Characteristics of a Successful Exchange Rate System," IMF Occasional Papers 82, International Monetary Fund.
  6. Bijan B. Aghevli & Eduardo Borensztein & Tessa Van der Willigen, 1992. "Stabilization and Structural Reform in the Czech and Slovak Federal Republic," IMF Occasional Papers 92, International Monetary Fund.
  7. Guillermo Calvo & Eduardo Borensztein & Paul R. Masson & Manmohan S. Kumar, 1993. "Financial Sector Reforms and Exchange Arrangements in Eastern Europe," IMF Occasional Papers 102, International Monetary Fund.
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Cited by:
  1. Pablo Mejia-Reyes & Denise Osborn & Marianne Sensier, 2010. "Modelling real exchange rate effects on output performance in Latin America," Applied Economics, Taylor & Francis Journals, vol. 42(19), pages 2491-2503.

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