The Effect of Currency Board Arrangements on Inflation Performance in Transition Countries before and during the Global Financial Crisis

Selena Begovic (), Nick Adnett and Geoff Pugh
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Selena Begovic: School of Economics and Business, University of Sarajevo, Sarajevo
Geoff Pugh: Staffordshire University Business School, The United Kingdom

Czech Journal of Economics and Finance (Finance a uver), 2019, vol. 69, issue 6, 510-537

Abstract: The aim of this paper is to empirically investigate the difference in inflation performances between European countries that adopted a currency board arrangement (CBA) in the early stage of transition and countries with other monetary regimes. The sample consists of 25 transition countries for the period 1998-2015. Before the Global Financial Crisis (GFC) the main objective of most central banks was the maintenance of low inflation rates and many studies investigated which regime was the best for keeping inflation rates at low levels. A CBA, as very rigid monetary regime, proved to be beneficial for fulfilling this goal. However, during and after the GFC central banks around the world tried to offset deflationary pressures and those that implemented a CBA have been unable to do so by implementing expansionary measures. Therefore, the question about CBA performance during and after the crisis is raised and has not been previously investigated and this paper aims to fill this gap. The results indicate that the effect of CBA on inflation has been negative, yet even larger during and after the GFC, which makes the desirability of this regime in these circumstances questionable.

Keywords: currency board arrangement; inflation; transition countries; crisis (search for similar items in EconPapers)
JEL-codes: E31 E42 E52 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:69:y:2019:i:6:p:510-537

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