21 Pages Posted: 19 Sep 2009
Date Written: October 1996
This study examines the path of adjustments of the exchange rate system in the transforming economy of Poland. It emphasizes the relative advantage of flexible exchange rates over the currency peg. It focuses on several aspects of the exchange rate policy that have not been adequately discussed. One of them is the rationale for returning to a currency peg to the leading currencies of the European Union (EU) and, in the future, to the Euro as a part of necessary preparations of the economy of Poland for accession to the Union. A return to a peg means the reversal from the path of the exchange rate system adjustments that has prevailed during the first five years, or in the first stage of the economic transformation. The study evaluates the rationale of applying a currency peg, thus “borrowing” monetary policy credibility from abroad, when the program of disinflation fails and the government loses a chance to stabilize the economy. High inflation that persists over a long time period is usually caused by automatic indexation, and adaptive expectations. Such chronic or inertial inflation continues long after the expiration of corrective inflation, or inflation stemming from price liberalization, cuts in subsidies and trade liberalization.
Keywords: exchange rate, Poland, economic transition
Suggested Citation: Suggested Citation
Orlowski, Lucjan T., The Path of Exchange Rates in the Polish Economic Transformation (October 1996). CASE Network Studies and Analyses No. 90. Available at SSRN: https://ssrn.com/abstract=1475265 or http://dx.doi.org/10.2139/ssrn.1475265
By Carlos Végh
By Jorge Roldós