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Beliefs about Exchange-Rate Stability: Survey Evidence from the Currency Board in Bulgaria

  • Neven T. Valev
  • John A. Carlson

Currency pegs seldom achieve full credibility even after delivering low inflation and a stable exchange rate for many years. We use unique survey data from Bulgaria's currency board to investigate the origins of incomplete credibility. We show that the limitations imposed by the currency board on output stabilization policies are a major source of concern. Many people view the financial stabilization policies as a reason for high unemployment and therefore as unsustainable. Another important factor for low credibility is the concern over potential international shocks. Conversely, past instability does not seem to translate strongly into expectations of future instability.

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Article provided by Taylor and Francis Journals in its journal Journal of Economic Policy Reform.

Volume (Year): 10 (2007)
Issue (Month): 2 ()
Pages: 111-121

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Handle: RePEc:taf:jecprf:v:10:y:2007:i:2:p:111-121
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