Exchange Rate Effects on Domestic Prices in Bulgaria and Poland: Progress in Making Markets?

Authors: Feinberg, Robert; Meurs, Mieke

Source: International Journal of the Economics of Business, Volume 12, Number 2, July 2005 , pp. 273-288(16)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

The economic liberalization which has occurred in Central and Eastern Europe (CEE) over the past 15 years generally has involved establishing domestic markets and privatizing state-owned firms, both with the intention of integrating the CEE economies into the global economy and allowing the benefits of competition to be realized. We explore how well this has been accomplished in two countries, Poland and Bulgaria, and the domestic conditions that contribute to its accomplishment. The sensitivity of domestic markets to international shocks, as reflected in exchange rate effects on domestic prices, may be viewed as an indicator of how integrated a country's markets are into the global economy, and a proxy for competition in those markets. In explaining variation in exchange-rate pass-through, we examine the impact of market structure, economic liberalization and infrastructure as factors contributing to the development of competitive markets. We find that although integration into global markets can significantly increase market competitiveness, domestic factors also play a significant role.

Keywords: Transition; Market Reform; Exchange Rate Pass-through; Central and Eastern Europe; JEL Classifications: P3, F3

Document Type: Research article

DOI: http://dx.doi.org/10.1080/13571510500128111

Affiliations: 1: Department of Economics, American University, Washington, DC 20016-8029, USA

Publication date: 2005-07-01

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