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BOSNIA AND HERZEGOVINA MONETARY SYSTEM AND TRADE DEFICIT

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Author(s): Marko Đogo

Journal: Zbornik Radova Ekonomskog Fakulteta Istočno Sarajevo
ISSN 1840-3557

Volume: 5;
Start page: 51;
Date: 2011;
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Keywords: currency board | low inflation rates | high trade deficit | Marshal-Lerner-Robinson’s requirement | structural changes in real economy.

ABSTRACT
Currency Board system in BHgained solid confidence of BH public thanks to therelatively low inflation rate in the period since it hasbeen introduced as well as thanks to its resistance tothe shock created by current world economy crisis.Still, some economists are very suspicious about itslong terms subsistence relating it to the constantlyhigh trade deficit and low unemployment rate in thecountry. A discussion about satisfaction of Marshal-Lerner-Robinson’s requirement for successfuldevaluation has arisen because the foreign currencyexchange rate was one of the measures suggested bythis group of economists. Tests conducted in thispaper show that this requirement is not satisfied.Consequently, BH should turn to the real economyreforms instead of the measures of abandonment ofpresent monetary system.
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