Tenuous Financial Stability

Neven Valev and John Carlson

No 540, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Many countries fix their exchange rate in order to bring financial stability. Usually, inflation declines and output expands but contractual agreements retain their short time frame, investment is sluggish, and economic growth slows down a few years later. This outcome is often attributed to persistent doubts on the part of agents in the commitment and ability of the government to maintain the peg. Yet direct evidence for credibility is difficult to obtain. Unique survey data from Bulgaria reveal that expectations of devaluation were indeed very much present three, four, and five years after that country achieved financial stability under a currency board regime.

Keywords: Credibility; Currency boards; Stabilization programs (search for similar items in EconPapers)
JEL-codes: E63 O11 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2003-02-01
New Economics Papers: this item is included in nep-fin, nep-ifn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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