Macroeconomic Performance of Currency Boards in Transition Economies

Abstract

The link between the exchange rate regime and macroeconomic performance has always been a debatable issue in international economics. This paper takes a critical look at this debate by focusing on the relative macreoeconomic performance of currency boards against other exchange rate regimes in transition economies. The empirical findings of this paper show that, relative to floating regimes, currency boards in transition economies are associated with lower inflation and higher real per-capita growth. Additionally, transition economies with currency boards experience higher real GDP per-capita growth compared to both pegged and floating regimes. According to the currency board experiences in transition economies, it can be stated that currency boards in Estonia, Lithuania and Bulgaria brought lower inflation and higher real GDP growth to these countries relative to the pre-currency board period.Transition Economies, Exchange Rates, Currency Boards, Inflation, Growth