Why did inflation fall so dramatically after the establishment of a currency board in Bulgaria in 1997 The establishment of the currency board was the response to a very severe financial crisis where inflation reached hyperinflationary levels. After the currency board was introduced, inflation fell even more spectacularly than it had risen with prices rising less than 10 annually during 1998 and 1999. Was this sudden drop in inflation due to a discipline effect caused by a reduction in money growth rates or to a confidence effect that created lower inflation expectations thus leading to higher money demand We find strong indirect evidence for a confidence effect but less support for a discipline effect.
International Journal of Development Issues – Emerald Publishing
Published: Feb 1, 2005