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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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  13. G�rard Roland, 2002. "The Political Economy of Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 29-50, Winter.
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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 56, The Vienna Institute for International Economic Studies, wiiw.
  2. Boyko Nikolov & Nikolay Markov & Nasko Dochev & Dimitar Dimitrov & Rumyana Kolarova & Rumen Dobrinsky, 2004. "Understanding Reform: A Country Study for Bulgaria," wiiw Balkan Observatory Working Papers 056, The Vienna Institute for International Economic Studies, wiiw.

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