Exchange Rate Regimes and Nominal Convergence in the CEECs

Marketta Järvinen
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Marketta Järvinen: Finnish Ministry of Finance

Macroeconomics from EconWPA

Abstract: This paper examines, in the context of future EMU membership of the Central and Eastern European countiries (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 re sults show that a credibly fixed exchange rate is inconsistent with fiscal irresponsibility, while adopting the common currency enables the conduct of ir-responsible 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 rare regimes; Inflation; Fiscal theory of the price level; Transition economies (search for similar items in EconPapers)
JEL-codes: E00 F33 O57 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn and nep-rmg
Date: Written 2002-09-19
Note: Type of Document - SWP; prepared on PC; pages: 50

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