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Building Monetary Credibility in a Transforming Economy

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Abstract

This paper uses unique survey data from Bulgaria, a transition economy with a currency board, to examine the following questions: 1) what is the level of confidence in the currency board over various time horizons, 2) how cognizant is the population of the restrictions a currency board imposes on monetary policy, and 3) whether those restrictions enhance agents' confidence in sustained financial stability. The results show that eliminating monetary policy enhances short-term credibility but does not have a significant effect of long-term credibility. Backing the local currency with foreign exchange reserves enhances both short-term and long-term credibility. However, the credibility-enhancing effect of the currency board is restricted to a group of agents who are more directly involved in the economy. The expectations of the remaining large majority of the population are based on political attitudes and various life experiences.

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  • Neven Valev, 2000. "Building Monetary Credibility in a Transforming Economy," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0212, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper0212
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    Bulgaria; transition economy;

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