Challenges and Prospects
Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 10: Choice of exchange rate regime: implications for South-East Europe
Julius Horvath 1. INTRODUCTION This contribution discusses the choice of exchange rate regimes by the countries of Southern and Eastern Europe, that is Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania, and Serbia and Montenegro. The chapter is structured as follows. Section 2 sketches – in a historical perspective – speciﬁc factors of development in South-East Europe. Section 3 evaluates recent positive developments. Section 4 reviews the literature on the exchange rate regime choice, while Section 5 connects exchange rate regimes with growth performance. Section 6 discusses the experience of Central European countries. Finally, Section 7 derives some tentative suggestions for South-East Europe. 2. SOME SPECIFICS OF SOUTH-EAST EUROPE First, from a historical perspective, the area of South-East Europe has quite often been a source of political tensions. These tensions, together with other factors, typically had a negative impact on growth and development, and on diﬀerent occasions led to currency and price vulnerability and to periods of high inﬂation and currency depreciation. It is an open question to what extent this political economy argument has implications for current policies concerning the exchange rate regime choice. Second, South-East Europe has long been one of the most underdeveloped areas in Europe. In the last 200 years or so, the countries of South-East Europe stayed on the periphery of European growth and oﬀ the convergence paths that would have brought them closer to the more developed areas of Europe. Bairoch (1976) and Berend and Ranki (1982) document that the gap between South-East...
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