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

  • Neven T. Valev

    ()

  • John A. Carlson

    ()

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://www.wdi.umich.edu/files/Publications/WorkingPapers/wp705.pdf
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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-705.

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Length: 30 pages
Date of creation: 01 Jun 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-705
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