Exchange Rate Arrangements and Monetary Policy in Southeastern Europe and Turkey: Some Stylized Facts

This paper offers an analytical overview of exchange rate regimes and monetary policy frameworks in the countries of Southeastern Europe and Turkey. The following ten countries/nonsovereign territories are analyzed here: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, the Former Yugoslav Republic of Macedonia (FYROM), Montenegro, Romania, Serbia and Turkey. Hard pegs and nominal exchange rate anchors feature in four cases, managed floats and money growth targeting in three cases, unilaterally euroized regimes in two cases, and a managed float and real exchange rate anchor in one case. The paper deals with the institutional importance as well as the unofficial role of the euro in Southeastern Europe. Furthermore, individual countries/territories economic developments in recent years (2001—04) and current monetary and exchange rate policies, instruments, issues and outcomes are explored in more detail. Inflation is found to have been on a declining and monetization on a rising trend across the region. In a number of cases, inflation performance can be explained by the stabilizing influence of the exchange rate as an external anchor. But some countries with money growth targeting strategies and loosely managed floats have also boasted low price rises. Overall monetary and economic policy credibility and perseverance may be the key to success here. The paper concludes with a brief outlook focusing on the euro as a stable anchor and point of convergence.