engleski

Exchange rate regime and behaviour of economic participants

This thesis investigates the effect of the exchange rate regime choice and the impact of the choice on participants in a small open economy. The usual approach to investigation of the impact of the exchange rate changes is to investigate how do the changes in the exchange rate value impact the changes in the inflation rate. In order to stabilize inflation many central banks often adopt fixed or very stable exchange rates. This thesis takes another approach entirely and contests the narrow view of the exchange rate to just inflation. This thesis postulates the choices of the exchange rate regime in itself dictates the behavior of economic agents. Under different exchange rate regimes the economic participants will make different choices and the difference in choices will be exhibited in the economic data. Therefore economies with different exchange rate regimes will have different data properties for same economic variables. The focus of analysis are small open economies undergoing economic transtion which have to make a choice between stable and variable exchange rate regime. The interaction between participants in the economy is investigated through a dynamic model with optimizing agents under two states: stable and variable exchange rate regime. The participants analyzed in the thesis are: central bank, banks, households, firms and governments. Each participant makes optimal choices under each state of the exchange rate regime. Once the model is implemented interactions between the participants is investigated and how different choices change the data. The model created is heavily skewed towards the impact of the monetary policy on the economy and does not investigate deeply into the fiscal policies. The predictions from the model are compared to the actual data on a sample of 10 transition economies: Bulgaria, Czech Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Romania, Slovakia, Slovenia. The model does very well in terms of the monetary variables like foreign debt, household debt. From the data it is clear there are possible fiscal policies which could offset the effects of a particular exchange rate regime, but on the data set this was only done in Czech Republic. Comparing the model and the data it is clear the choice of the exchange rate regime and the change of the exchange rate regime (switch in the regime) does cause different economic behavior of economic participants. This brings another light to the influence of the monetary policy on the economy since from the model and the data it is clear the choice of the exchange rate regime play a significant role in the process of decision making of economic participants. The most striking differences are in: household debt and foreign debt. The model and the data both show the variable exchange rate is superior to stable exchange rate regime.

exchange rate regime; dynamic optimization; economic participants; monetary policy

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