Exchange Rate Policy and Output Growth in Transition Economies: The Experience of Bulgaria, the Czech Republic, Poland and Slovenia

Abstract

After a significant output decline during the early stages of transition, which primarily reflected the adverse initial conditions as well as the strong disinflationary policy stand, most transition economies moved into positive rates of growth. More specifically, by the end of 1994 the majority of the transition economies of Eastern and Central Europe recorded positive rates of growth that have been sustained up to the end of 1997. An important issue with respect to these output developments in the transition economies refers to the role of the exchange rate policies adopted by the countries in question. As a matter of fact, it represents an important aspect of exchange rate policy that has been somewhat overlooked. That is, while the relative merits of alternative exchange rate regimes regarding the stabilization process of these countries have been examined in detail, their effect on output growth has not received significant attention.