Stabilization Programs and External Enforcement: Experience From the 1920's

January 1, 1993

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Credibility and financing problems are important reasons why countries may seek to involve external institutions in the design and implementation of stabilization programs. In particular, governments may rely on external institutions to ‘enforce’ programs that would otherwise lack credibility. This paper analyzes six European currency stabilizations sponsored by the League of Nations in the 1920s. It emphasizes the means by which the League provided a ‘commitment technology’ and enforced compliance, thereby helping to ensure successful stabilizations. Empirical evidence indicates that countries with greater credibility problems relied more heavily on external enforcement to stabilize their currencies.

Subject: Banking, Currencies, Exchange rates, Financial institutions, Foreign exchange, Inflation, Loans, Monetary expansion, Monetary policy, Money, Prices

Keywords: central bank, commitment regime, credibility problem, Currencies, Eastern Europe, Europe, exchange rate, Exchange rates, Inflation, inflation rate, Loans, macroeconomic stabilization effort, Monetary expansion, price level, rate of depreciation, WP

Pages:
48
Volume:
1993
DOI:
https://doi.org/10.5089/9781451841824.001
Issue:
003
Series:
Working Paper No. 1993/003
Stock No:
WPIEA0031993
ISBN:
9781451841824
ISSN:
1018-5941

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Notes

Analyzes six European currency stabilizations sponsored by the League of Nations in the 1920s, namely Austria, Hungary, Greece, Bulgaria, Estonia and Danzig. Also published in Staff Papers, Vol. 40, No. 3, September 1993.

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