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Exchange Rate Stability, Inflation, and Growth in (South) Eastern and Central Europe
Author(s) -
De Grauwe Paul,
Schnabl Gunther
Publication year - 2008
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2008.00470.x
Subject(s) - economics , inflation (cosmology) , exchange rate , monetary economics , stability (learning theory) , outlier , sample (material) , economic stability , econometrics , macroeconomics , statistics , mathematics , chemistry , physics , chromatography , machine learning , theoretical physics , computer science
The authors analyze the impact of the exchange rate regime on inflation and output in (South) Eastern and Central Europe. For the whole observation period the estimations reveal a significant impact of exchange rate stability on low inflation as well as a highly significant positive impact of exchange stability on real growth. When subdividing the period into a “high‐inflation” period (1994–97) and a “low‐inflation period” (1998–2004), and when removing outliers from the sample, the evidence in favor of a positive association between exchange rate stability and inflation disappears. The association of exchange rate stability with higher real growth remains robust. These findings suggest that membership of the (South) Eastern and Central European countries in the European Monetary Union would have a positive impact on these countries' growth rates.