How to Reduce Inflation: An Independent Central Bank or A Currency Board? The Experience of the Baltic Countries
AbstractCountries in transition often face high levels of inflation. This paper discusses two ways to reduce inflation: the creation of an independent central bank and the introduction of a currency board. It is shown that both options have advantages and disadvantages. This framework is used for a normative analysis of the policy choices of the Baltic states. It is argued that, while Estonia's currency board based on the D-mark is very much in line with the criteria for an optimal monetary regime, Lithuania's initial choice of a US-dollar based currency board is not. The peg to the SDR - which very much looks like a currency board - as (eventually) adopted by Latvia is an intermediate case. Some policy recommendations and the problem of exit strategies towards the Euro zone are discussed.
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Bibliographic InfoPaper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 9601.
Length: 28 pages
Date of creation: 2001
Date of revision:
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currency board; central bank independence; Baltics;
Other versions of this item:
- de Haan, Jakob & Berger, Helge & van Fraassen, Erik, 2001. "How to reduce inflation: an independent central bank or a currency board? The experience of the Baltic countries," Emerging Markets Review, Elsevier, vol. 2(3), pages 218-243, September.
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-03 (All new papers)
- NEP-IFN-2003-11-03 (International Finance)
- NEP-MAC-2003-11-03 (Macroeconomics)
- NEP-MFD-2003-11-03 (Microfinance)
- NEP-MON-2003-11-03 (Monetary Economics)
- NEP-RMG-2003-11-03 (Risk Management)
- NEP-TRA-2003-11-03 (Transition Economics)
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