Abstract
The design of monetary system in Slovenia was influenced by the heritage of peristent shortages of foreign exchange. This and other considerations prompted a decision that a new currncy-Tolar was to float on two separate foreign exchange markets: a market for current account transactios, and a market for capital account transactios. Actual developments differed considerably from forecasts; an abundance prevailed, and the Tolar remained remarkably strong. The aim of the paper is to present, estimate and test a simple model describing the behaviour of the Tolar in the first period of high uncertainty; and to assess its relevance for the real world. Exchange-rate movements are analyzed as if they were adjusting to the expected price level. The results imply that the dealers do not wait for new data on prices to be disclosed; they, howevr, try and anticipate the likely effects of inflation on the exchange rate. It is shown that interventions by the Central Bank did not affect the SIT/DM exchange rate appreciably. The answer to the question whether other Eastern European countries could have benefitted from “the short-run story of the tolar’, is inconclusive, if not negative.
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We are grateful to A. Beltratti, A. Brzeski, Ch. Flinn, P. Sgro, H. Wagener and the referees of this Journal for their comments on a preliminary draft of this paper. Part of this work has been carried out while J. Mencinger was a Fellow at ICER, Turin, to which we are both indebted.
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Colombatto, E., Mencinger, J. Partial adjustment without tears: A tale for the tolar. Empirica 22, 83–101 (1995). https://doi.org/10.1007/BF01384647
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DOI: https://doi.org/10.1007/BF01384647