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Article
Publication date: 1 February 2005

Stacic Beck, Jeffrey B. Miller and Mohsen M. Saad

Why did inflation fall so dramatically after the establishment of a currency board in Bulgaria in 1997? The establishment of the currency board was the response to a very…

Abstract

Why did inflation fall so dramatically after the establishment of a currency board in Bulgaria in 1997? The establishment of the currency board was the response to a very severe financial crisis where inflation reached hyperinflationary levels. After the currency board was introduced, inflation fell even more spectacularly than it had risen with prices rising less than 10% annually during 1998 and 1999. Was this sudden drop in inflation due to a “discipline” effect caused by a reduction in money growth rates or to a “confidence” effect that created lower inflation expectations thus leading to higher money demand? We find strong indirect evidence for a confidence effect but less support for a discipline effect.

Details

International Journal of Development Issues, vol. 4 no. 2
Type: Research Article
ISSN: 1446-8956

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