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Money supply endogeneity under a currency board regime: the case of Bosnia and Herzegovina

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  • Shirley J. Gedeon

Abstract

A currency board is a monetary regime based on an explicit commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate. Currency boards are thought to exhibit properties of money supply endogeneity and monetary self-regulation, eliminating the need for discretionary monetary policy. This paper offers a theoretical and institutional explanation why, under the strict currency board regime in Bosnia and Herzegovina, it is possible to observe credit expansion in the presence of persistent trade deficits. It explains how the lender of last resort function is reestablished through private discount window arrangements between domestic and foreign parent banks, illustrating a de facto privatization and decentralization of monetary policy.

Suggested Citation

  • Shirley J. Gedeon, 2009. "Money supply endogeneity under a currency board regime: the case of Bosnia and Herzegovina," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 32(1), pages 97-114, September.
    • Handle: RePEc:mes:postke:v:32:y:2009:i:1:p:97-114
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    Cited by:

    1. Gedeon Shirley, 2010. "The Political Economy of Currency Boards: Case of Bosnia and Herzegovina," South East European Journal of Economics and Business, Sciendo, vol. 5(2), pages 7-20, November.
    2. Krus, Nicholas, 2012. "The Money Supply in Currency Boards," Studies in Applied Economics 3, The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.
    3. Tas, Bedri Kamil Onur & Togay, Selahattin, 2012. "A direct test of the endogeneity of money: Implications for Gulf Cooperation Council (GCC) countries," Economic Modelling, Elsevier, vol. 29(3), pages 577-585.

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