Working Paper: CEPR ID: DP626
Authors: Istvan Abel; John P. Bonin
Abstract: This paper discusses three aspects of stabilization and international integration: the real wage; inflation; and the real effective exchange rate. Using empirical evidence on inflation and the real effective exchange rate, we evaluate the gradualist option represented by the Hungarian reforms. The prospect for continuing a programme based on a real exchange rate anchor supported by a crawling peg tied to a basket of convertible currencies is assessed. These issues are compared with the experience of Poland, which is considered to be an example of shock therapy using a nominal anchor.
Keywords: stabilization policy; east european economic transformation; real wage; exchange rate anchor
JEL Codes: E63; F31; P52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Hungary’s crawling peg policy (F31) | real effective exchange rate stability (F31) |
| fixed nominal anchor approach (F31) | larger fluctuations in exchange rate (F31) |
| shock therapy (E65) | hyperinflation (E31) |
| gradualism (O40) | less volatility in inflation rates (E31) |