The Game of Anchors: Studying the Causes of Currency Crises in Belarus
50 Pages Posted: 17 Feb 2016
Date Written: December 2015
Abstract
Belarus experienced a sequence of currency crises during 2009-2014. Our empirical results, based on a structural econometric model, suggest that the activist wage policy and extensive state program lending (SPL) conflicted with the tightly managed exchange rate regime and suppressed monetary policy transmission. This created conditions for the unusually frequent crises. At the current juncture, refocusing monetary policy from exchange rate to inflation would help to avoid disorderly external adjustments. The government should abandon wage targets and phase out SPL to remove the underlying source of the imbalances and ensure lasting stabilization.
Keywords: currency crisis, exchange rate policies, currency, exchange rate, monetary policy, currency crises, economy, Time-Series Models, Monetary Policy (Targets, Instruments, and Effects), Open Economy Macroeconomics
JEL Classification: C32, E42, E52, E61, F31, F41
Suggested Citation: Suggested Citation