BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Exchange rate regimes and nominal convergence in the CEECs
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.
Keywords: exchange rate regimes; inflation; fiscal theory of the price level; transition economies; (follow links to similar papers)
JEL-Codes: E00; F33; O57; (follow links to similar papers)
50 pages, March 28, 2002
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