Proceedings

On the meeting Éva Várhegyi described in her presentation the evolution of the Hungarian exchange rate regime since the introduction of the crawling peg regime within the framework of the stabilization package of March 1995. She analyzed the costs and benefits of applying this regime with narrow bands around the central parity. In determining the advantages she pointed to the role the regime played in strengthening the credibility of monetary authorities , contributing to the disinflation process in the earlier period of its application and to strengthening fiscal discipline. She also mentioned the major costs including the increase of backward looking expectations, the weakening of the disinflation process, the

Miroslav Beblavy analyzed the evolution of the Slovak exchange rate regime. In his paper he pointed to the stages of macroeconomic and exchange rate developments before the currency crisis of September 1998 which was mostly a home made crisis according to the author. The currency crisis resulted however in the shift of the exchange rate regime from the earlier pegged one to a managed floating. This shift was also accompanied by significant stabilization measures centered around fiscal and incomes policies with the aim of improving the unsustainable current account and fiscal balances. Mr. Beblavy described the evolution of the exchange rate regime, the changes in monetary arrangement from monetary to inflation targeting and its impact on central bank policies.

Mr. Kowalewski presented a paper on the Polish exchange rate problems wit a very critical approach towards the current policy of hard currency. In his presentation and contribution Mr. Kowalewski described the evolution of the Polish exchange rate arrangement since the first stabilization policies. He mentioned that the gradual increase of flexibility was a necessary measure as the country had to cope simultaneously with disinflation and high current account deficit coupled with net capital inflows. He questioned however that the current exchange rate regime and the policy of letting the zloty to appreciate is a correct one as it slows down export growth, may have adverse impact on the current account balance and spill-over to the economic growth which will be the lowest this year in the last 8 years.

Mr. Lavrac evaluated the experiences of Slovenia with exchange rate regime which are special since the country has since the beginning of transition adopted managed floating. Mr. Lavrac’s presentation discussed in detail the lessons the monetary authorities have accumulated with the use of managed floating mentioning that both the macroeconomic record and the evolution of exchange rate indicators justify the initial choice of monetary authorities and their reliance on this regime. He mentioned also that the policy of the central bank is to keep this arrangement till the expected EU and later ERM-II membership. In his presentation he ahs also mentioned that the liberalization of capital flows, the slow-down in disinflation process may be a factor of concern for monetary authorities as well as the exposure to exogenous shocks which is unavoidable given the size of the economy.

Mr.Sepp and his colleague Mr. Randveer elaborated the very special Estonian experiences, which are very different from the other economies in the sample as Estonia chose at the beginning of transition the currency board arrangement which has been since maintained. The attached paper describes in detail the background and the institutional set-up of the Estonian currency board arrangement and the evolution of this regime in the past years. The institutional commitments under this exchange rate targeting created a very pre-committed, rule-based monetary policy framework, which has proven successful in disinflation and establishing macroeconomic stability. On the other hand it is more difficult to the monetary authorities to design the shift from currency board to other exchange rate regime more compatible with the aspiration to become member of EU and EMU. The presentation regarded as a feasible strategy the membership in EMU achieved through the prevailing exchange rate arrangement.

Mr. Backé contributed with an introductory paper discussing the price developments and their influence on exchange rate policies in these economies. He mentioned that the process of price convergence is strong, and it has exposed the economies in question to different extent. Mr.Backé determined three major sources of price convergence. One is a transitional one related to the changes in the administrative prices and liberalization of remaining regulated ones. The another source is related to the process of catching up and is associated with the well-known Balassa-Samuleson-impact. The last major source is due to the integration of these economies to the European Union and the effects coming from the integration process.

Mr. Wójcik presented a paper dealing with the issue’s of euroisation in general and then presenting the case of Poland. The firs part of the paper emphasized the costs and benefits of giving up ones national currency and surrendering its own monetary policy completely to the external authority. The paper convincingly showed the distribution of costs and benefits in general, and then presented a calculation and assessment for Poland a country which has been engaged in the last years most heavily in the debate over euroisation. The final conclusion of the author explicitly present in the paper was that the costs outweigh the benefits especially because of the lack of the adjustment possibility, the need to have a relatively flexible exchange rates before ERM-II membership, and the shocks affecting these economies.

Mr. Gáspár presented a paper assessing the relationship between real and nominal convergence in these economies and their impact on the choice of the exchange rate regime. In the process of catching up there are three different convergence trends: the real convergence which means the narrowing of differences in price and wage levels, per capital incomes , actual and equilibrium exchange rate levels, the nominal one presented in meeting the Maastricht criteria and the structural one most closely related to the meeting of the OCA criteria. He showed that while real and nominal convergence may stimulate each other in several aspects there is a serious trade-off between the two. The paper also presented some tentative conclusions on the impact of these trade-off on the choice of exchange rate regime.

Mr. Freitag in his presentation described the exchange rate alternatives available for these economies. After that he turned to analyze the issue of monetary policy arrangements and discussing what factors reinforce the sustainability and credibility of individual regimes. He said that institutional framework and legal commitments are equally important in determining this outcome.