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The authors analyze the impact of the exchange rate regime on inflation and output in (South) Eastern and Central Europe. For the whole observation period the estimations reveal a significant impact of exchange rate stability on low inflation as well as a highly significant positive impact of exchange stability on real growth. When subdividing the period into a "High-inflation" period (1994 - 97) and a "Low-inflation period" (1998 - 2004), and when removing outliers from the sample, the evidence in favor of a positive association between exchange rate stability and inflation disappears.
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