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

We use unique survey data from Bulgaria’s currency board to examine the reasons for persistent incomplete credibility of a financial stabilization regime. Although it produced remarkably positive effects in terms of sustained low inflation since 1997, the currency board has not achieved full credibility. This is not uncommon in other less-developed countries with fixed exchange rate regimes. Our results reveal that incomplete credibility is explained primarily by concerns about external economic shocks and the persistent high unemployment in the country. Past experiences with high inflation do not rank among the top reasons to expect financial instability in the future.

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File URL: http://icepp.gsu.edu/files/2015/03/ispwp0424.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 paper0424.

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Length: 34 pages
Date of creation: 01 Nov 2004
Date of revision:
Handle: RePEc:ays:ispwps:paper0424
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Fax: 404-413-0244
Web page: http://aysps.gsu.edu/isp/index.html

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  13. Carlson, John A. & Valev, Neven T., 2001. "Credibility of a new monetary regime: The currency board in Bulgaria," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 581-594, June.
  14. Maurice Obstfeld., 1996. "Destabilizing Effects of Exchange-Rate Escape Clauses," Center for International and Development Economics Research (CIDER) Working Papers C96-075, University of California at Berkeley.
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  18. Jonung, L. & Laidler, D., 1988. "Are Perceptions Of Inflation Rational? Some Evidence For Sweden," UWO Department of Economics Working Papers 8808, University of Western Ontario, Department of Economics.
  19. D. Backus & J. Driffil, 1998. "Inflation and Reputation," Levine's Working Paper Archive 625, David K. Levine.
  20. Sergio L. Schmukler & Luis Serven, 2002. "Pricing Currency Risk: Facts and Puzzles from Currency Boards," NBER Working Papers 9047, National Bureau of Economic Research, Inc.
  21. Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1319-29, December.
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  27. Rzepkowski, Bronka, 2003. "The devaluation expectations in Hong Kong and their determinants," Journal of the Japanese and International Economies, Elsevier, vol. 17(2), pages 174-191, June.
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