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Tenuous Financial Stability

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  • Neven T. Valev

    ()

  • John A. Carlson

    ()

Abstract

Many countries fix their exchange rate in order to bring financial stability. Usually, inflation declines and output expands but contractual agreements retain their short time frame, investment is sluggish, and economic growth slows down a few years later. This outcome is often attributed to persistent doubts on the part of agents in the commitment and ability of the government to maintain the peg. Yet direct evidence for credibility is difficult to obtain. Unique survey data from Bulgaria reveal that expectations of devaluation were indeed very much present three, four, and five years after that country achieved financial stability under a currency board regime.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 540.

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Length: 28 pages
Date of creation: 01 Feb 2003
Date of revision:
Handle: RePEc:wdi:papers:2003-540

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Keywords: Credibility; Currency boards; Stabilization programs;

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References

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  1. Jan Svejnar, 2001. "Transition Economies: Performances and Challenges," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 415, William Davidson Institute at the University of Michigan.
  2. Brock, Philip L. & Rojas Suarez, Liliana, 2000. "Understanding the behavior of bank spreads in Latin America," Journal of Development Economics, Elsevier, Elsevier, vol. 63(1), pages 113-134, October.
  3. Erik Berglof & Patrick Bolton, 2001. "The Great Divide and Beyond: Financial Architecture in Transition," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 414, William Davidson Institute at the University of Michigan.
  4. John Williamson, 1995. "What Role of Currency Boards?," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, Peterson Institute for International Economics, number pa40, November.
  5. Mehlum, Halvor, 2001. "Capital accumulation, unemployment, and self-fulfilling failure of economic reform," Journal of Development Economics, Elsevier, Elsevier, vol. 65(2), pages 291-306, August.
  6. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 38, William Davidson Institute at the University of Michigan.
  7. Wyplosz, Charles, 2000. "Ten Years of Transformation: Macroeconomic Lessons," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2254, C.E.P.R. Discussion Papers.
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  13. G�rard Roland, 2002. "The Political Economy of Transition," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 16(1), pages 29-50, Winter.
  14. Schwartz, Anna J., 1993. "Currency boards: their past, present, and possible future role," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 147-187, December.
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Cited by:
  1. Dimitar Dimitrov & Rumen Dobrinsky & Nasko Dochev & Rumyana Kolarova & Nikolay Markov & Boyko Nikolov, 2004. "Understanding Reform: A Country Study for Bulgaria," wiiw Balkan Observatory Working Papers, The Vienna Institute for International Economic Studies, wiiw 56, The Vienna Institute for International Economic Studies, wiiw.
  2. repec:wii:bpaper:bowp:056 is not listed on IDEAS

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