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Tenuous Financial Stability

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Author Info
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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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School 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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Related research
Keywords: Credibility; Currency boards; Stabilization programs;

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Find related papers by JEL classification:
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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  1. Dobrinsky, Rumen, 2000. "The Transition Crisis in Bulgaria," Cambridge Journal of Economics, Oxford University Press, vol. 24(5), pages 581-602, September.
  2. Mehlum, Halvor, 2001. "Capital accumulation, unemployment, and self-fulfilling failure of economic reform," Journal of Development Economics, Elsevier, vol. 65(2), pages 291-306, August. [Downloadable!] (restricted)
  3. Wyplosz, Charles, 2000. "Ten years of transformation - macroeconomic lessons," Policy Research Working Paper Series 2288, The World Bank. [Downloadable!]
    Other versions:
  4. Drazen, Allan & Masson, Paul R, 1994. "Credibility of Policies versus Credibility of Policymakers," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 735-54, August. [Downloadable!] (restricted)
    Other versions:
  5. Guillermo A. Calvo & Carlos A. Végh, 1994. "Inflation Stabilization And Nominal Anchors," Contemporary Economic Policy, Western Economic Association International, vol. 12(2), pages 35-45, 04. [Downloadable!] (restricted)
    Other versions:
  6. Gerard Roland, 2002. "The Political Economy of Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 29-50, Winter. [Downloadable!] (restricted)
  7. Brock, Philip L. & Rojas Suarez, Liliana, 2000. "Understanding the behavior of bank spreads in Latin America," Journal of Development Economics, Elsevier, vol. 63(1), pages 113-134, October. [Downloadable!] (restricted)
  8. Guillermo A. Calvo & Allan Drazen, 1997. "Uncertain Duration of Reform: Dynamic Implications," NBER Working Papers 5925, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Enrique G. Mendoza & Martin Uribe, 1999. "Devaluation Risk and the Syndrome of Exchange-Rate-Based Stabilizations," NBER Working Papers 7014, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Kaminsky, Graciela L. & Leiderman, Leonardo, 1998. "High real interest rates in the aftermath of disinflation: is it a lack of credibility?," Journal of Development Economics, Elsevier, vol. 55(1), pages 191-214, February. [Downloadable!] (restricted)
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  11. Schmukler, Sergio L. & Serven, Luis, 2002. "Pricing currency risk : facts and puzzles from currency boards," Policy Research Working Paper Series 2815, The World Bank. [Downloadable!]
    Other versions:
  12. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," William Davidson Institute Working Papers Series 38, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  13. repec:cup:macdyn:v:2:y:1998:i:4:p:443-55 is not listed on IDEAS
  14. Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1319-29, December. [Downloadable!] (restricted)
  15. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter. [Downloadable!] (restricted)
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  16. Erik Berglof & Patrick Bolton, 2002. "The Great Divide and Beyond: Financial Architecture in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 77-100, Winter. [Downloadable!] (restricted)
  17. Richard W. Kopcke, 1999. "Currency boards: once and future monetary regimes?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 21-37. [Downloadable!]
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