discussion_200227_en - November 2002 Shadowing the Euro:...

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Unformatted text preview: November 2002 Shadowing the Euro: Bulgaria’s Monetary Policy Five Years on Martin Zaimov Kalin Hristov BULGARIAN NATIONAL BANK dp/2dp/2 dp/2dp/2d p/2 7/20027/2002 7/20027/20027 /2002 DISCUSSION PAPERS 2 dp/27/2002 © Bulgarian National Bank, November 2002 ISBN 9 954≠9791≠56≠4 Accepted October 2002. Printed in BNB Printing Center. Views expressed in materials are those of the authors and do not necessarily reflect BNB policy. Send your comments and opinions to: Publications Division Bulgarian National Bank 1, Alexander Battenberg Square 1000 Sofia, Bulgaria Tel.: 9145/1271, 1351, 1906 Fax: (359 2) 980 2425 e-mail: [email protected] Website: www.bnb.bg DISCUSSION PAPERS Editorial Board: Chairman: Garabed Minassian Members: Georgi Petrov Nikolay Nenovsky Victor Yotzov Secretary: Lyudmila Dimova 3 Discussion Papers Contents I. Introduction....................................................................................5 II. The Role of Monetary Policy ........................................................5 A Realistic View .......................................................................... 5 The Currency Board .................................................................... 8 III. Coordination of Monetary and Fiscal Policy ............................16 Interaction between Monetary and Fiscal Policy ..................... 16 The Currency Board and the Fallacy of Constrained Fiscal Policy .......................................................... 18 IV. The Currency Board, Foreign Trade and the Balance of Payments....................................................................23 V. The Economic Activity.................................................................31 VI. The Financial Sector....................................................................33 VII.Challenges and Recommendations ............................................36 References.....................................................................................41 4 dp/27/2002 S UMMARY . B ULGARIA ' S ECONOMIC PROGRESS IN RECENT YEARS IS REGARDED AS DE- TERMINED BY THE CURRENCY BOARD REGIME INTRODUCED IN 1997. B ASED ON EXPE- RIENCE OF THE LAST FIVE YEARS THIS PAPER TRIES TO WEIGH UP THE TRUTH OF THAT ASSUMPTION . I T IS SHOWN THAT CURRENCY BOARD ENSURED THE PRICE AND FINANCIAL STABILITY THE B ULGARIAN ECONOMY NEEDED AS A PRECONDITION FOR STABLE AND SUSTAINABLE ECONOMIC GROWTH . I N THE POST 1997 PERIOD , B ULGARIA ACHIEVED THE LOWEST AND MOST STABLE INFLATION RATES SINCE THE BEGINNING OF THE ECONOMIC REFORM , COMBINED WITH THE HIGHEST AND MOST STABLE OUTPUT GROWTH . T HE FISCAL POLICY WAS ORIENTED TOWARD LOW BUDGET DEFICIT . T HIS POLICY HAD IN PRACTICE AF- FORDED THE GOVERNMENT GREATER FLEXIBILITY BY INCREASING ITS DISPOSABLE IN- COME DUE TO REDUCED INTEREST PAYMENTS AND GROWING TAX BASE AS A RESULT OF HIGH ECONOMIC GROWTH . T HE FIXED EXCHANGE RATE HAD A POSITIVE EFFECT ON THE VOLUME OF FOREIGN TRADE . P ERSISTED CURRENT ACCOUNT DEFICIT , CREATED...
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This note was uploaded on 05/04/2011 for the course FINANCE 104 taught by Professor Smith during the Spring '10 term at Abilene Christian University.

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discussion_200227_en - November 2002 Shadowing the Euro:...

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