Pegging out: lessons from the Czech exchange rate crisis

Article Abstract:

The experience of the Czech Republic provides substantial evidence that attempts to hold the exchange rate parity will not prosper when supporting policies are not implemented appropriately. The Czech Republic's adoption of a fiscal policy pegging the fixed exchange rate parity in 1991 resulted in a crisis, forcing the government to abandon the exchange rate peg in May 1997. The key lesson learned from the Czech experience is that relatively fixed parities impose severe strains on the banking industry as well as bank regulators. It was also found that low inflation combined with privatization does not necessarily lead to economic stability.

Public Finance Activities, Fiscal Policy, Foreign Exchange & Reserves Policy, Case studies, Prices and rates, Czech Republic, Foreign exchange, Foreign exchange rates

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A note on initial conditions and liberalization during transition

Article Abstract:

The relationship between trade liberalization and economic performance in transition economies was examined. Empirical evidence shows that the cumulative liberalization index is endogenous to the decline in total output, thereby overstating the role of policy in economic performance. The conclusion is that economic policies during the transition period are not likely to strongly influence the severity of the output decline during the initial stages of the transition.

Trade Regulations NEC, Analysis, Economic aspects, Trade policy, Industrial productivity, International trade regulation, Commercial policy, Free trade

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