CASE Network Reports, Eastern Europe, Caucasus and Central Asia, Europe, exchange rate, Macroeconomics and macroeconomic policy, Post-communist transition and development issues, CASE Reports, transition economies

Credibility of the Exchange Rate Policy in Transition Countries


Credibility of an exchange rate policy is one of the most important factors contributing to success or failure of any stabilization program. Authorities usually hope that the public will trust official exchange rate commitments and take decisions regarding domestic currency holdings accordingly. However, as the experience of several countries analyzed in this study shows, this is not always the case. Economic agents behave in line with their own expectations which need not directly reflect central bank's commitments but are most often a combination  of official policy and public's own notions regarding its actual future course.