The effect of a currency board arrangement on subjective assessments of a country's economic performance. (18th January 2023)

• Record Type: Journal Article
• Authors: Begović, Selena; Adnett, Nick; Pugh, Geoff
• Is Part Of: International journal of economic policy in emerging economies. Volume 17:Number 1(2023)
• Page Start: 16
• Page End: 47
• Publication Date: 2023-01-18
• Subjects: currency board arrangement -- CBA -- perceptions -- expectations -- European transition countries; Russia (Federation) -- Economic policy -- 1991- -- Periodicals; Former Soviet republics -- Economic policy -- 1991- -- Periodicals; China -- Economic policy -- 1991- -- Periodicals; 338.947
• Languages: English
• ISSNs: 1752-0452

Abstract

We present a novel approach to evaluating the effect of a monetary exchange rate regime on economic performance, focusing on countries with a currency board arrangement (CBA). This approach is designed to evaluate the impact of the regime on the perceptions and expectations of a population. We utilise seemingly unrelated regressions to analyse data from large-sample surveys conducted by the Austrian National Bank over the period 2007-2016 in ten European transition economies. The analysis indicates that the probability of the economic situation in a country being perceived as good by its citizens is lower in countries with a currency board arrangement. However, this negative effect almost disappears among respondents who do not trust their government and when there is a significant recession in the country. These findings suggest that a CBA should be maintained for its stabilising effects: 1) when the economic situation is unfavourable, although it might not be beneficial once the situation is stabilised; 2) in countries with low levels of trust in government.