DP457 | The Roles of Monetary Policy in the Process of Economic Reform in Eastern Europe

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01/09/1990

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Abstract

The first part of the paper analyzes the inflationary risks associated with price liberalization, the welfare costs of inflation and the difficulties of East European central banks in pursuing non-inflationary policies. The main obstacles are the low credibility of stabilization policies and a strategy problem, which is related to the high instability of real and financial sectors. The second part analyzes three options of an ecu-peg for East European currencies: a unilateral peg to the ECU, membership in the Exchange Rate Mechanism of the European Monetary System, and participation in a future European Monetary Union (EMU).