Title: The effect of a currency board arrangement on subjective assessments of a country's economic performance

Authors: Selena Begović; Nick Adnett; Geoff Pugh

Addresses: School of Economics and Business, University of Sarajevo, Trg oslobođenja 1, 71 000 Sarajevo, Bosnia and Herzegovina ' Business School, Staffordshire University, College Road, Stoke-on-Trent ST4 2DE, UK ' Business School, Staffordshire University, College Road, Stoke-on-Trent ST4 2DE, UK

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.

Keywords: currency board arrangement; CBA; perceptions; expectations; European transition countries.

DOI: 10.1504/IJEPEE.2023.128384

International Journal of Economic Policy in Emerging Economies, 2023 Vol.17 No.1, pp.16 - 47

Received: 25 Oct 2019
Accepted: 21 Jun 2020

Published online: 19 Jan 2023 *

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