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Tenuous Financial Stability

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 years after that country achieved financial stability under a currency board regime.

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File URL: http://icepp.gsu.edu/files/2015/03/ispwp0210.pdf
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Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper0210.

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Length: 20 pages
Date of creation: 01 May 2002
Date of revision:
Handle: RePEc:ays:ispwps:paper0210
Contact details of provider: Phone: 404-413-0235
Fax: 404-413-0244
Web page: http://aysps.gsu.edu/isp/index.html

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  1. 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.
  2. John Williamson, 1995. "What Role of Currency Boards?," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa40, 03.
  3. Blanchard, O & Kremer, M, 1996. "Disorganization," Working papers 96-30, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. 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.
  5. Guillermo A. Calvo & Allan Drazen, 1997. "Uncertain Duration of Reform: Dynamic Implications," NBER Working Papers 5925, National Bureau of Economic Research, Inc.
  6. repec:cup:macdyn:v:2:y:1998:i:4:p:443-55 is not listed on IDEAS
  7. Wyplosz, Charles, 2000. "Ten Years of Transformation: Macroeconomic Lessons," CEPR Discussion Papers 2254, C.E.P.R. Discussion Papers.
  8. Schmukler, Sergio L. & Serven, Luis, 2002. "Pricing currency risk : facts and puzzles from currency boards," Policy Research Working Paper Series 2815, The World Bank.
  9. Dobrinsky, Rumen, 2000. "The Transition Crisis in Bulgaria," Cambridge Journal of Economics, Oxford University Press, vol. 24(5), pages 581-602, September.
  10. 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.
  11. Paul R. Masson & Allan Drazen, 1994. "Credibility of Policies Versus Credibility of Policymakers," IMF Working Papers 94/49, International Monetary Fund.
  12. Calvo, Guillermo A. & Drazen, Allan, 1998. "Uncertain Duration Of Reform," Macroeconomic Dynamics, Cambridge University Press, vol. 2(04), pages 443-455, December.
  13. 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.
  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.
  15. Schwartz, Anna J., 1993. "Currency boards: their past, present, and possible future role," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 147-187, December.
  16. Berglöf, Erik & Bolton, Patrick, 2003. "The Great Divide and Beyond - Financial Architecture in Transition," CEPR Discussion Papers 3476, C.E.P.R. Discussion Papers.
  17. 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.
  18. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter.
  19. G�rard Roland, 2002. "The Political Economy of Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 29-50, Winter.
  20. 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.
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