Exchange rate policy in transition economies: the case of Hungary

Article Abstract:

The experience of Hungary provides clear evidence that premature fixing of the foreign exchange rate does not result in economic stability for transition economies. Hungary implemented a preannounced crawling band exchange rate system during 1995-1997 as part of an economic reform program. The main elements of the program included value-added taxes, increases in consumption and expenditure cuts. The main lesson learned from the case of Hungary is that the crawling peg is a transitional system. An effective exchange rate regime must take into account reform-induced inflationary pressure, credibility and restructuring of production and exports.

Case studies, Hungary

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Macroeconomic fragility and exchange rate vulnerability: a cautionary record of transition economies

Article Abstract:

Evidence shows that higher inflation rates and the initial disequilibrium between the highly undervalued flexible or nominal exchange rates relative to their purchasing power parity estimates affect the interaction between foreign exchange rates and macroeconomic stabilization in transition economies. The experience of transition economies during 1990-1996 supports this statement. Policymakers during that period generally preferred the nominal exchange rate regimes to manipulate real exchange rates in an attempt to correct the exchange rate disequilibrium and impose inflation controls.

Macroeconomics, Equilibrium (Economics)

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Exchange rate regimes and the stability of trade policy in transition economies

Article Abstract:

Empirical evidence shows that high inflation rates and insufficient productivity growth undermine the rate of protection provided by the exchange rate regime to domestic industries in transition economies. The experience of Bulgaria, Czech Republic, Hungary, Poland, Slovakia and Romania during 1992-1997 supports this conclusion as well as the relationship between exchange rate regimes and commercial policy. It was also found that policymakers were pressured to increase trade barriers to deal with the real appreciation of currencies.

Trade Regulations NEC, Trade policy, Industrial productivity, International trade regulation, Commercial policy

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