Exchange Rate and Inflation: France and Bulgaria in the Interwar Period

The objective of this paper is twofold. First, to compare the model of financial stabilization in the interwar period in France (a country in the “core”) with that in Bulgaria (a peripheral country). Second, applying modern econometric techniques (VAR models) we would like to “test “whether the theory designating a dominant role of the exchange rate on inflation (in comparison to that of money in circulation) holds and can be empirically proved by the actual movement of the monetary variables and the direction of their causality. Going back to the history of stabilization in France and Bulgaria in the interwar period and studying it through the theoretical ideas at the beginning of the XX century would provide us not only with new elements in the analysis of the present-day problems of monetary stabilizations but also add to the arguments of the crucial significance of the exchange rate and monetary rules for the efficiency and credibility of the monetary regime.