Pegging Out: Lessons from the Czech Exchange Rate Crisis

David Begg

No 1956, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In May 1997 the Czech Republic abandoned its exchange rate peg, the centrepiece of macroeconomic strategy since 1991. I examine the usefulness of theories of speculative attack in interpreting the crisis. Significantly, after the crisis subsided, competitiveness returned to its earlier level. One intepretation is that the koruna was the innocent victim of turmoil in Asia. This neglects the trend deterioration of competitiveness prior to the crisis. I therefore conclude that the crisis provoked a much-needed adjustment in fiscal policy, which altered the monetary-fiscal mix and consequent equilibrium exchange rate. Sterilization during 1994-6 unhelpfully delayed adjustment. Earlier abandonment of the parity would have helped only if it had also induced the required fiscal adjustment.

Keywords: Capital Inflows; Exchange Rate Bands; Monetary Policy; Speculative Attacks (search for similar items in EconPapers)
JEL-codes: E58 E65 F31 (search for similar items in EconPapers)
Date: 1998-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1956 (application/pdf)

Related works:
Journal Article: Pegging Out: Lessons from the Czech Exchange Rate Crisis (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1956

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1956

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().