engleski

Analysis of exchange rate based stabilization effects in contemporary economic practice with special reference to Croatia

This paper analyses exchange rate based stabilization syndrome in developing and developed countries. Compared to stabilizations with monetary anchor, exchange based stabilizations result with economic boom instead of recession at the beginning of the program. Furthermore, exchange rate based stabilizations have resulted with a large number of empirical regularities: economic boom, consumption boom, real appreciation and return of hyperinflation. Many empirical and theoretical studies tried to identify reasons of the exchange rate based stabilization syndrome. The most important theoretical models in explaining ERBS are lack of credibility, sticky inflation theory, wealth effect theory and financial fragility. All theories have specific explanations about consumption maximization, marginal utility, exchange rate fixation, price and wage indexation, intergenerational wealth distribution, fiscal consolidation, information flow etc. Empirical surveys (based on values of ten macroeconomic variables) in different countries (Argentina, Brazil, Israel, Mexico, Turkey...) have already tested exchange rate based syndrome and confirmed its prognosis. In developed countries this type of stabilization (Italy, Ireland...) was also completely successful.

inflation; stabilization; exchange rate

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