Exchange rate regimes and nominal convergence in the CEECs

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Title: Exchange rate regimes and nominal convergence in the CEECs
Author: Järvinen, Marketta
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series number: 4/2002
Year of publication: 2002
Publication date: 30.3.2002
Pages: 41 s.
Keywords: valuuttakurssit; inflaatio; KIE; finanssipolitiikka; EMU; valuuttapolitiikka; hinnat; rahaliitot; Bofit-kokoelma
Abstract: This paper examines, in the context of future EMU membership of the Central and Eastern European countries (CEECs), the interaction between fiscal policy and the price level in different exchange rate regimes.The theoretical framework is based on the Fiscal Theory of the Price Level (FTPL).The results show that a credibly fixed exchange rate is inconsistent with fiscal irresponsibility, while adopting the common currency enables the conduct of irresponsible policies with the result that a rise in the level of debt by one member country raises the common price level of the whole union. Key words: exchange rate regimes, inflation, fiscal theory of the price level, transition economies

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