Balance of Payments, Exchange Rates, and Competitiveness: Lessons for Transition Economies from the Israeli Experience
In this chapter I draw from the Israeli experience in the area of exchange-rate policies, balance of payments, and competitiveness to infer about these issues for transition economies. For this purpose one needs, first, to clarify the definition of transition: Does this concept refer to the lack of markets? Does it mean the lack of institutions? Does transition imply the lack of instruments? Does it indicate a less healthy financial environment? Or does it just mean that the economy is undergoing a process of transformation? And if so, do we need a special theory for each and every one of these cases? I believe not. I believe that one can take into account the special circumstances of a transition economy without having to develop a separate theory. Although it is inappropriate to develop a simplistic blueprint that can be applied rigidly to each and every case, one must recognize that the basic principles of the main corpus of conventional economic theory are much more universal then meets the eye. They are also applicable to the phenomenon called transition economies.
KeywordsExchange Rate Interest Rate Monetary Policy Central Bank Real Exchange Rate
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