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A Model of Exchange Rate Regime Choice in the Transitional Economies of Central and Eastern Europe
Author:
Mr. Vladimir Klyuev
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Series:
IMF Working Papers
Volume/Issue:
Volume 2001: Issue 140
Language:
English
Publication Date:
01 Sep 2001
DOI:
https://doi.org/10.5089/9781451856125.001
ISBN:
9781451856125
ISSN:
1018-5941
Pages:
42
Keywords:
WP; exchange rate regime; managed float; inflation rate; inflationary spiral; Transition; exchange rate policy; inflation; regime determination; rate of inflation; regime choice; government policy; Exchange rate arrangements; Exchange rate flexibility; Conventional peg; Exchange rates; Central and Eastern Europe; Eastern Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The paper develops a model of exchange rate regime choice centered on the trade-off between internal price stability and external competitiveness and allowing for institutional costs of altering exchange rate arrangements. The main implication of the model is a nonlinear relationship between the rate of inflation and the choice of regime for the next period. The model also suggests that a major inflationary shock-like the one to which all Central and Eastern European economies were subject when they allowed prices to be determined by the market-should give rise to a tightening of the exchange rate regime, followed by a gradual introduction of more flexibility as inflation subsides. A series of regressions on a sample of 13 Central and Eastern European economies yield results consistent with the hypothesis.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund