 Inflation, Interest and Exchange Rates in the TransitionDomenico Mario Nuti ()
Chapter 16 in Collected Works of Domenico Mario Nuti, Volume I, 2023, pp 371-402 from Palgrave Macmillan Abstract: Abstract Central and Eastern European economies have made extraordinary progress in their trade and exchange regimes. Surprisingly, instant convertibility was established for a great variety of exchange rate regimes. In spite of diversity, all these countries have followed a common pattern: severe initial undervaluation—the cost of speed and unrestricted trade—followed by rapid real revaluation and incipient protectionism. Since 1994 in many cases an embarras de richesse has appeared: high capital inflows which are either inflationary or costly to sterilize. A major cause of these flows—or at any rate of the high cost of sterilization—is the presence of significant interest rate differentials higher than required to cover the risk of devaluation. These are the necessary consequences of a policy of positive real interest rates and of real revaluation from excessively undervalued exchange rates. Lower interest rates are recommended, both to stem financial capital inflows and to reduce the cost of their sterilization. Date: 2023 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pal:stuchp:978-3-031-12334-4_16 Ordering information: This item can be ordered from DOI: 10.1007/978-3-031-12334-4_16 Access Statistics for this chapter More chapters in Studies in Economic Transition from Palgrave Macmillan |
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