An investigation into the credibility of currency board arrangements in Bosnia and Herzegovina and Bulgaria

Abstract

Highlights The paper is comparing the effect of currency board arrangements with other monetary/exchange rate regimes on the credibility of the monetary authority  Answers to survey question about the expectations about the local currency stability are used as an indicator of the credibility of monetary authority  The results suggest a positive effect of CBA on monetary author's credibility  Additionally, the results imply that the positive effect of currency boards is greater the worse the expectations about economic prospects and the lower the trust in government AbstractCurrency Boards are usually argued to increase the credibility of the monetary authority, although this effect ultimately depends on the economic, political and institutional circumstances in the specific country. Few studies have previously been able to address this issue empirically. Using a novel database, the analysis conducted in this paper finds that, other things being equal, the credibility of the monetary authority is likely to be higher in those European transition countries with currency board arrangements, namely Bosnia and Herzegovina and Bulgaria. The results also suggest that currency board arrangements are more likely to increase the credibility of the monetary authority in countries with a low level of trust in government and a weak economy. These findings imply that the maintenance of currency board arrangements in recent years in Bosnia and Herzegovina and Bulgaria may have been advantageous.

A Note on the Competing Causes of High Inflation in Bulgaria during the 1990s: Money Supply or Exchange Rate?

“… See Charles and Marie (2016) for an alternative definition of hyperinflation. 2 See, for instance,Ivanova (2009) andBegović et al (2016) on the various effects of the currency board.…”

Dependent Capitalism and Monetary Regimes: The Case of the Balkan Countries

“…The determining role of external factors and the subordinate importance of national elites in the choice of a CB in Bulgaria and Bosnia and Herzegovina are indirectly confirmed by one of the recent surveys on CB's credibility in both countries (Begovic et al 2015).…”

External Debt in Bosnia and Herzegovina – An Empirical Analysis

“…Simply, if policy makers want to achieve long-run sustainability of the external debt, hence, external macroeconomic stability, there is a need to tackle the challenge of high foreign trade deficit immdeidatelly. This can be done in several ways, but considering specifics of BiH environment with currency Board arrangement (Begovic et al 2016), huge diaspora remittances that are likely to shrink in the future (Efendic at al. 2014;Efendic 2016), high emigrations intentions in the country and the region (Zbinden et al 2016), a higher export and more substitutions of import is necessary for the more stable macroeconomic environment of this country.…”