Exchange Rate Policy in Transition Economies: The Case of Hungary

Posted: 20 May 1999

Abstract

We review the experience of Hungary with the preannounced crawling band exchange rate system during 1995-97. When selecting the exchange rate regime, several key characteristics of the transition process must be taken into account: reform-induced inflationary pressure, the necessity to restructure production and exports, and the need to establish credibility. We argue against a premature fixing of the exchange rate in transition economies and suggest that a crawling band can serve well the dual objectives of maintaining competitiveness and moderating inflation if it is supported by appropriate fiscal and structural policies. The exchange rate can be used more actively for disinflation if an acceptable wage policy can be negotiated, but this is difficult to achieve in the initial phase of the transition when the credibility of policy is weak.

JEL Classification: E52, F31, F32, P24

Suggested Citation

Szapary, Gyorgy and Jakab, Zoltan M., Exchange Rate Policy in Transition Economies: The Case of Hungary. Available at SSRN: https://ssrn.com/abstract=164528

Gyorgy Szapary (Contact Author)

Magyar Nemzeti Bank ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

Zoltan M. Jakab

Magyar Nemzeti Bank ( email )

Szabadsag ter 8-9
Budapest, H-1850
Hungary

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