IDEAS home Printed from https://ideas.repec.org/a/kap/iecepo/v13y2016i1d10.1007_s10368-015-0327-x.html
   My bibliography  Save this article

Currency boards as a path towards the Eurozone: lessons from the Baltics

Author

Listed:
  • Holger Wolf

    (Georgetown University)

Abstract

In the early 1990s, the three Baltic states adopted de jure (Estonia 1992, Lithuania 1994) or de facto (Latvia) currency boards. After operating under boards for two decades, Estonia (2011), Latvia (2014) and Lithuania (2015) exited to the Eurozone. The paper takes a qualitative look at their experience through the lens of the currency board literature. Viewed over the entire period of operation, the boards delivered on the inflation stabilization objective with little evidence of a growth or trade penalty. The high average performance was however accompanied by high volatility on both the nominal and the real side. While the boards avoided both currency and sovereign debt crises, they contributed to vulnerabilities, notably the 2004–2010 boom-bust cycle. The Baltic experience re-enforces policy lessons from earlier crisis under fixed exchange rates: vigilance and timely response to incipient vulnerabilities associated with short-term capital-inflows and over-heating.

Suggested Citation

  • Holger Wolf, 2016. "Currency boards as a path towards the Eurozone: lessons from the Baltics," International Economics and Economic Policy, Springer, vol. 13(1), pages 45-57, January.
    • Handle: RePEc:kap:iecepo:v:13:y:2016:i:1:d:10.1007_s10368-015-0327-x
    DOI: 10.1007/s10368-015-0327-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10368-015-0327-x
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10368-015-0327-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Tornell, Aaron & Velasco, Andres, 2000. "Fixed versus flexible exchange rates: Which provides more fiscal discipline?," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 399-436, April.
    2. Ardo Hansson & Martti Randveer, 2013. "Economic adjustment in the Baltic countries," Chapters, in: Ewald Nowotny & Peter Mooslechner & Doris Ritzberger-Grünwald (ed.), A New Model for Balanced Growth and Convergence, chapter 12, pages 190-206, Edward Elgar Publishing.
    3. repec:ucp:bknber:9780226645568 is not listed on IDEAS
    4. Mr. Adam Bennett, 1993. "The Operation of the Estonian Currency Board," IMF Policy Discussion Papers 1992/003, International Monetary Fund.
    5. Nicolas E. Magud & Carmen M. Reinhart & Esteban R. Vesperoni, 2014. "Capital Inflows, Exchange Rate Flexibility and Credit Booms," Review of Development Economics, Wiley Blackwell, vol. 18(3), pages 415-430, August.
    6. Olivier Blanchard & Mark Griffiths & Bertrand Gruss, 2013. "Boom, Bust, Recovery Forensics of the Latvia Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(2 (Fall)), pages 325-388.
    7. Ardo Hansson & Martti Randveer, 2013. "Economic adjustment in the Baltic Countries," Bank of Estonia Working Papers wp2013-1, Bank of Estonia.
    8. Mrs. Marie T Dal Corso, 2004. "An Institutional Framework for Comparing Emerging Market Currency Boards," IMF Working Papers 2004/180, International Monetary Fund.
    9. Anders Aslund & Valdis Dombrovskis, 2011. "How Latvia Came through the Financial Crisis," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6024, April.
    10. repec:zbw:bofitp:1999_009 is not listed on IDEAS
    11. repec:zbw:bofitp:1999_006 is not listed on IDEAS
    12. Mr. Christoph B. Rosenberg & Marcel Tirpák, 2008. "Determinants of Foreign Currency Borrowing in the New Member States of the EU," IMF Working Papers 2008/173, International Monetary Fund.
    13. Olivier Blanchard & Mark Griffiths & Bertrand Gruss, 2013. "Boom, Bust, Recovery: Forensics of the Latvia Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 325-388.
    14. Mr. Charles Enoch & Mr. Tomás J. T. Baliño, 1997. "Currency Board Arrangements: Issues and Experiences," IMF Occasional Papers 1997/005, International Monetary Fund.
    15. Atish R Ghosh & Jonathan D Ostry & Mahvash S Qureshi, 2015. "Exchange Rate Management and Crisis Susceptibility: A Reassessment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(1), pages 238-276, May.
    16. Holger C. Wolf & Atish R. Ghosh & Helge Berger & Anne-Marie Gulde, 2008. "Currency Boards in Retrospect and Prospect," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232650, April.
    17. Adam G. G. Bennett, 1993. "The Operation of the Estonian Currency Board," IMF Staff Papers, Palgrave Macmillan, vol. 40(2), pages 451-470, June.
    18. Mr. Audun Groenn & Ms. Maria Wallin Fredholm, 2013. "Baltic and Icelandic Experiences of Capital Flows and Capital Flow Measures," IMF Working Papers 2013/242, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Natalia Levenko & Karsten Staehr, 2017. "To Be or Not to Be in the Ruble Zone: Lessons from the Baltic States," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(04), pages 34-42, January.
    2. Bas B. Bakker & Marta Korczak, 2017. "Phoenix from the Ashes: The Recovery of the Baltics from the 2008/2009 Crisis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(4), pages 520-544, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Olivier Blanchard & Mark Griffiths & Bertrand Gruss, 2013. "Boom, Bust, Recovery: Forensics of the Latvia Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 325-388.
    2. D�ra Győrffy, 2015. "Austerity and growth in Central and Eastern Europe: understanding the link through contrasting crisis management in Hungary and Latvia," Post-Communist Economies, Taylor & Francis Journals, vol. 27(2), pages 129-152, June.
    3. Olivier Blanchard & Mark Griffiths & Bertrand Gruss, 2013. "Boom, Bust, Recovery Forensics of the Latvia Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(2 (Fall)), pages 325-388.
    4. Atish R Ghosh & Jonathan D Ostry & Mahvash S Qureshi, 2015. "Exchange Rate Management and Crisis Susceptibility: A Reassessment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(1), pages 238-276, May.
    5. Gyöngyösi, Győző & Rariga, Judit & Verner, Emil, 2021. "The anatomy of consumption in a household foreign currency debt crisis," SAFE Working Paper Series 332, Leibniz Institute for Financial Research SAFE.
    6. Bas B. Bakker & Marta Korczak, 2017. "Phoenix from the Ashes: The Recovery of the Baltics from the 2008/2009 Crisis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(4), pages 520-544, December.
    7. Schweickert, Rainer, 1998. "Chancen und Risiken eines Currency Board Systems," Open Access Publications from Kiel Institute for the World Economy 1786, Kiel Institute for the World Economy (IfW Kiel).
    8. Eric M. Leeper, 2015. "Fiscal Analysis is Darned Hard," CAEPR Working Papers 2015-021, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    9. Mr. Bas B. Bakker & Marta Korczak & Mr. Krzysztof Krogulski, 2019. "Unemployment Surges in the EU: The Role of Risk Premium Shocks," IMF Working Papers 2019/056, International Monetary Fund.
    10. Hilmar Tór HILMARSSON, 2014. "Managing Financial Crisis: The Case of Iceland and Latvia," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 15(2), pages 200-214, May.
    11. Åsa Nyblom & Karolina Isaksson & Mark Sanctuary & Aurore Fransolet & Peter Stigson, 2019. "Governance and Degrowth. Lessons from the 2008 Financial Crisis in Latvia and Iceland," Sustainability, MDPI, vol. 11(6), pages 1-16, March.
    12. Jorge Braga de Macedo & José Braz & Luis Brites Pereira & Luis C. Nunes, 2006. "Exchange market pressure and the credibility of Macau's currency Board," Nova SBE Working Paper Series wp492, Universidade Nova de Lisboa, Nova School of Business and Economics.
    13. Hilmar Þór Hilmarsson, 2013. "Post Crisis “Success” Stories? Economic Outcomes And Social Progress In Iceland And Latvia," SSE Riga/BICEPS Occasional Papers 9, Baltic International Centre for Economic Policy Studies (BICEPS);Stockholm School of Economics in Riga (SSE Riga).
    14. Hartmut Lehmann & Tiziano Razzolini & Anzelika Zaiceva, 2020. "The Great Recession and Labor Market Adjustment: Evidence from Latvia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(1), pages 149-181, March.
    15. Karsten Staehr, 2016. "Public Finances and Fiscal Policy in the Baltic States 1991–2015," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 8(1).
    16. Olegs Krasnopjorovs, 2015. "Natural and Cyclical Unemployment in Latvia: New Insights from the Beveridge Curve Model," Discussion Papers 2015/02, Latvijas Banka.
    17. Mr. Joong S Kang & Mr. Jay C Shambaugh, 2014. "Progress Towards External Adjustment in the Euro Area Periphery and the Baltics," IMF Working Papers 2014/131, International Monetary Fund.
    18. Jeffrey Frankel, 2021. "Systematic Managed Floating," World Scientific Book Chapters, in: Steven J Davis & Edward S Robinson & Bernard Yeung (ed.), THE ASIAN MONETARY POLICY FORUM Insights for Central Banking, chapter 5, pages 160-221, World Scientific Publishing Co. Pte. Ltd..
    19. Jekaterina Navicke, 2020. "Driving factors behind the changes in income distribution in the Baltics: income, policy, demography," GRAPE Working Papers 44, GRAPE Group for Research in Applied Economics.
    20. Māra Bukovska & Marija Krūmiņa & Alf Vanags & Linda Vildava, 2016. "The rise of the dual labour market: fighting precarious employment in the new member states through industrial relations (PRECARIR) Country report: Latvia," Research Reports 16, Central European Labour Studies Institute (CELSI).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:iecepo:v:13:y:2016:i:1:d:10.1007_s10368-015-0327-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.