The paper investigates empirically the relationships between
exchange rates and inflation in Western Balkan countries. The literature on the
transition countries has recently focused on exchange rate as a shock absorber
and downplayed its costs to macroeconomic stabilization. However, the decision to apply a different
exchange rate regime depends on the costs and benefits in giving up an exchange
rate instrument. With this in mind, the
objective of this study is to determine whether fixed exchange rates play a
significant role in inflationary performance or whether flexible exchange rates
perform as a better shock-absorbing instrument in the Western Balkans. The
result reveals that an exchange rate is still the main source of inflationary
pressures in Western Balkan countries. Thus policy makers must weigh the
relative costs and benefits associated with introducing a flexible exchange
rate in small open economies because such regime is likely to incur more costs
than benefits.
Transition economies Western Ballkan Countries exchange rate inflation
Bölüm | Articles |
---|---|
Yazarlar | |
Yayımlanma Tarihi | 30 Aralık 2016 |
Yayımlandığı Sayı | Yıl 2016 |
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