From Prosperity to Depression: Bulgaria and Romania (1996/97-2010)

42 Pages Posted: 20 Aug 2011

See all articles by Nikolay Nenovsky

Nikolay Nenovsky

Bulgarian National Bank

Kiril Tochkov

Texas Christian University - Department of Economics

Camelia Turcu

University of Orleans

Date Written: April 19, 2011


Bulgaria and Romania are neighbouring countries, which have always been rivals. Following the decision on EU enlargement to include Bulgaria and Romania (late 1999) and with membership negotiations already started (2004), the race between the two countries gained momentum and comparisons of performances in the areas of economy and democracy became a regular practice. Around late 1990s the two countries took different trajectories, although in the direction of EU and market economy. The great divergence is lying primarily in the choice of monetary regime. While Romania continued to pursue and enhance its discretionary monetary policy and since 2005 has moved to inflation targeting, Bulgaria made an abrupt turn in mid-1997 and introduced a currency board arrangement. In this paper, we investigate how the monetary regimes choice shaped the structure of both economies and the behaviour of the public and private sector, how they modified the mechanisms of adjustments and how they concentrate risks. We discus the institutional compatibility of monetary regimes with EU accession and EU membership using the theoretical insights form Dooley (1997, 2000) insurance model hypothesis. One of the main hypotheses, which we illustrate empirically, says that Currency board concentrate all economic activity and risks in the private sector, hence increasing of the private debt, while discretionary monetary policy leads to greater public debt growth and lower fiscal discipline. EU integration as well as the current crisis has different effects when combination with different monetary regimes.

Keywords: post communist transformation, monetary regimes, global crisis, Bulgaria, Romania

JEL Classification: F33, F36, P20, P30

Suggested Citation

Nenovsky, Nikolay and Tochkov, Kiril and Turcu, Camelia, From Prosperity to Depression: Bulgaria and Romania (1996/97-2010) (April 19, 2011). William Davidson Institute Working Paper No. 1018, Available at SSRN: or

Nikolay Nenovsky (Contact Author)

Bulgarian National Bank ( email )

str "St. Sofia" 5
Sofia, 1040
+ 359 2 9145 1239 (Phone)
+ 359 2 980 24 25 (Fax)

Kiril Tochkov

Texas Christian University - Department of Economics ( email )

Box 298510
Fort Worth, TX 76129
United States
817-257-7554 (Phone)
817-257-5058 (Fax)


Camelia Turcu

University of Orleans ( email )

Rue de Blois
B.P. 6739
45067 Orleans Cedex 2, Orleans cedex 2 45067

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