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Trade liberalization and exchange rate policy : possibilities and constraints in a small open economy : the case of Hungary
[Libéralisation commerciale et politique de change : possibilités et contraintes dans une petite économie ouverte : le cas de la Hongrie]

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  • Kolozsi Pal Peter

    (GEM - Groupe d'économie mondiale - Sciences Po - Sciences Po)

Abstract

The thesis is based on two main ideas: the institutions matter concerning the success of economic policy during the trade liberalization process and monetary policy can be seen as a key factor from that point of view. The line of argument of the thesis is based on a theoretical model of trade balance, inflation and exchange rate. The model is applied to the case of Hungary and the Hungarian experiences back the main conclusions of the model: monetary and exchange rate policy is unsustainable if it is determined without taking into consideration the trade effects. The economic history of Hungary between 1989 and 2009 gives several examples for that unsustainability. Chapter 1 describes the development of institutionalism; chapter 2 demonstrates the importance of monetary policy as an institution from the point of view of trade liberalization describes the optimal monetary policy and explains why it is difficult to follow that policy. Chapter 3 presents the relationship between exchange rate policy and trade. Chapter 4 outlines the functioning of manipulative exchange rate policies. Chapter 5 presents the model deficit-inflation. Chapter 6 presents the Hungarian experiences and underlines that monetary policy focused only on disinflation has to fail and the independence of the central bank can even represent risks to the economies in transition.

Suggested Citation

  • Kolozsi Pal Peter, 2011. "Trade liberalization and exchange rate policy : possibilities and constraints in a small open economy : the case of Hungary [Libéralisation commerciale et politique de change : possibilités et cont," SciencePo Working papers Main tel-04052596, HAL.
    • Handle: RePEc:hal:spmain:tel-04052596
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/tel-04052596
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    References listed on IDEAS

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