DP3799 | The Credibility of the Hungarian Exchange Rate Regime 1997-98


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This study intends to analyse the credibility of the Hungarian exchange rate regime preceding and during the Russian stock market crisis and devaluation (in 1998). Throughout the Paper the comparison with the similar regime in Poland is stressed. The basic tool applied is a measure of market imperfections, more precisely deviations from covered interest rate parity. The size, sign and dynamics of these deviations provide insight into the expectations of market participants. These in turn yield conclusions concerning the credibility and vulnerability of the regimes. Policy implications also follow.