Exchange rate regimes and nominal convergence in the CEECs

Marketta Järvinen

No 4/2002, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: This paper examines, in the context of future EMU membership of the Central and Eastern European countries (CEECs), the interaction between fiscal policy and the price level in different exchange rate regimes.The theoretical framework is based on the Fiscal Theory of the Price Level (FTPL).The results show that a credibly fixed exchange rate is inconsistent with fiscal irresponsibility, while adopting the common currency enables the conduct of irresponsible policies with the result that a rise in the level of debt by one member country raises the common price level of the whole union.

Keywords: exchange rate regimes; inflation; fiscal theory of the price level; transition economies (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:bdp2002_004

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