Monetary and Exchange Rate Policies, EMU and Central and Eastern Europe

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The continuing global crisis reinforces the need for Europe's transition economies to find a robust strategy for macroeconomic policy in the period leading up to accession and in preparation for joining EMU. This report examines three of the issues that need to be resolved along the way: How should policymakers think about the actual and the desirable evolution of the real exchange rate in transition economies? What nominal anchor should be adopted? To what extent must any credible monetary policy be underpinned by sound fiscal policy?Implicit in all these questions is the appropriate speed of disinflation; the tradeoffs between fiscal prudence, adequate government expenditure on infrastructure, and regulatory capacity; and the implications for capital flows and the vulnerability of the banking system.

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Threats and Responses
Fiscal Support for Successful Exchange Rate Policy

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About the author (1999)

David Begg is Professor of Economics at Birkbeck College, London, and a Research Fellow in CEPR's International Macroeconomics and Transition Economics research programmers. László Halpern is Senior Research Fellow and Deputy Director at the Institute of Economics of the Hungarian Academy of Sciences in Budapest. Charles Wyplosz is professor of international economics and director of the International Center for Monetary and Banking Studies at the Graduate Institute of International Studies in Geneva.

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