Exchange Rate Stability, Inflation, And Growth In (South) Eastern And Central Europe

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.