Stabilization in the Baltic Countries: A Comparative Analysis

April 1, 1995

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Tapio Saavalainen. Stabilization in the Baltic Countries: A Comparative Analysis, (USA: International Monetary Fund, 1995) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The Baltic countries began their stabilization and reform process in earnest in mid-1992. During the first two and a half years of reform, these countries have made significant progress in macroeconomic stabilization. Financial policies were tight, inflation was brought down, and by 1994, the output decline had bottomed out and recovery was under way. The paper analyzes the key aspects of this adjustment process in a comparative framework. Apart from comparing the Baltic stabilization programs themselves, major features of their fiscal adjustment, price, and output stabilization are related to the Central European experience. Factors that could explain the good performance in the Baltic countries are suggested and key aspects of an adjustment process typical for an exchange-rate-based stabilization and money-based stabilization, respectively, are discussed. The paper argues that in light of the Baltic experience the credibility of stabilization policies has been of greater importance than the choice of the exchange rate regime per se. Moreover, the cost of disinflation in terms of lost output was limited and short lived.

Subject: Currencies, Exchange rate arrangements, Exchange rates, Foreign exchange, Inflation, Money, Prices, Real exchange rates

Keywords: Baltics, Central bank, Currencies, Disinflation process, Europe, Exchange rate arrangements, Exchange rate risk, Exchange rates, Inflation, Inflation expectation, Inflation performance, Inflation process, Kroon vis-à-vis, Latvia's inflation, Low-inflation anchor country, Money supply, Nominal exchange rate, Price arbitrage, Price level, Real exchange rates, Rising prices, Risk premium, U.S. dollar, World inflation, WP

Publication Details

Pages:

52
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1995/044
Stock No:

WPIEA0441995
ISBN:

9781451974683
ISSN:

1018-5941

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