nep-tra New Economics Papers
on Transition Economics
Issue of 2011‒07‒27
24 papers chosen by
J. David Brown
Heriot-Watt University

  1. The Impact of the Global Financial Crisis on Education and Healthcare in the Economies of the Former Soviet Union – the Case of Moldova By Richard Woodward; Deniz E. Yörük; Slavo Radosevic
  2. Eastern European lessons for the southern Mediterranean By André Sapir; Georg Zachmann
  3. Fiscal shocks and budget balance persistence in the EU countries from Central and Eastern Europe By Juan Carlos Cuestas; Karsten Staehr
  4. Impact of Health Insurance on Consumption and Saving Behaviours: Evidence from Rural China By Cheung, Diana; Padieu, Ysaline
  5. Implementing Sustainable Urban Travel Policies in China By Haixiao Pan
  6. Evolution and public system reform in the Balkans By Voicu, Vicenția Georgiana
  7. How flexible are real wages in EU countries? A panel investigation By Frigyes Ferdinand Heinz; Desislava Rusinova
  8. How do demand fluctations and credit constraints affect R&D? Evidence from Central, Southern and Eastern Europe. By Kadri Männasoo; Jaanika Meriküll
  9. Aspects of national policy convergence. Labor market experiences of employment in some Balkan states. Case study. By Nica, Aser
  10. Representation of property rights and credit market outcomes: Evidence from a land reform in Vietnam By Kemper, Niels; Klump, Rainer; Schumacher, Heiner
  11. Fiscal and Monetary Institutions in Central, Eastern and South-Eastern European Countries By Zsolt Darvas; Valentina Kostyleva
  12. The Problems of Creating the State Brand "Russian Nation" as a Tool of Socio-Political Marketing By Naumov, Sergey
  13. Human resource motivation in Romanian public administration - The European Union enlargement context By Cornea, Cătălin-Ionuț
  14. Bulgarian Public Administration facing the Challenges of the Expanding European Administrative Space By Nachev, Ivan
  15. Convergence of Romanian R&D System within Innovation Union By Sandu, Steliana
  16. Who cares about the Chinese Yuan? By Balasubramaniam, Vimal; Patnaik, Ila; Shah, Ajay
  17. Corporate Social Responsibility on the International Area. Present Developments in Romania and Bulgaria By Matei, Ani; Tuca, Mihaela
  18. Who Suffers the Penalty? A Panel Data Analysis of Earnings Gaps in Vietnam By Nordman, Christophe J.; Nguyen, Huu Chi; Roubaud, François
  19. Efficiency and effectiveness in Romanian local public administration By Nicolae, Andrei
  20. Employment and the Financial Crisis: Evidence from Tajikistan By Kröger, Antje; Meier, Kristina
  21. The Social Enterprise. An Empirical Study for Romania By Matei, Lucica; Sandu, Cristina
  22. Are Uzbeks Better Off? Economic Welfare and Ethnicity in Kyrgyzstan By Steiner, Susan; Esenaliev, Damir
  23. Political Connections and Investment in Rural Vietnam By Finn Tarp; Thomas Markussen
  24. Identificarea regimului cursului de schimb valutar în republica moldova By CIBOTARU, Vitalie; NEUMANN, Rainer; CUHAL, Radu; UNGUREANU, Mihai

  1. By: Richard Woodward; Deniz E. Yörük; Slavo Radosevic
    Abstract: This paper focuses on knowledge-based entrepreneurship, or new firm creation in industries which are considered to be science-based or to use research and development intensively, in the East Central European (ECE) context. On the basis of case studies of thirteen knowledge-based firms in six ECE countries, we suggest that KBE firms in these countries may differ in some important ways from the conventional picture of new technology based firms. In general, we see the ECE knowledge-intensive firm as a knowledge-localiser or customiser, adapting global knowledge to local needs on the domestic market, rather than a knowledge-creator generating new solutions for global markets. The entrepreneurs who start and run these businesses are skilled at spotting trends early and bringing them to their countries. Based in countries that generally have poor reputations as sources of innovative, high-technology products, but having established strong brands for themselves in their home markets, they are struggling with the challenge of entering export markets with products and services that can achieve global, or at least regional, recognition. The studies of the companies discussed here suggest that ECE firms are still in the early stages of this strategic shift.
    Keywords: Knowledge-based economy, Entrepreneurship, Transition, Post-communist, SMEs, Case studies, Croatia, Czech Republic, Hungary, Lithuania, Poland, Romania
    JEL: L26 O31 O52 P27
    Date: 2011–07
  2. By: André Sapir; Georg Zachmann
    Abstract: The economic profiles of southern Mediterranean countries (SMCs) bear some resemblance to those of south-eastern European countries and some former Soviet republics at the beginning of their economic transition in 1990. The SMCs resemble less the former communist countries that joined the European Union in 2004. The SMCs are more advanced in terms of market reforms, but less well equipped with human capital and infrastructure, than the former communist countries were in the early 1990s. The EUâ??s willingness to underpin reforms in central and south eastern Europe and hold out the prospect of EU membership contributed to substantial growth, highlighting the long-term value of partnership with the EU. Long-term partnership has so far been absent for the southern Mediterranean countries. The existing Union for the Mediterranean framework is too weak to provide the necessary EU support to domestic reforms in the SMCs, and to ensure the desired stability and prosperity in the region. To encourage a successful transition in the SMCs, a Euro-Mediterranean Economic Area should be established by 2030.
    Date: 2011–07
  3. By: Juan Carlos Cuestas; Karsten Staehr
    Abstract: This paper analyses the time series properties of the fiscal balance in the 10 EU countries from Central and Eastern Europe. The persistence of shocks in the variable is analysed by means of unit root tests that account for the possibility of non-linearities and structural changes. The results of linear and non-linear unit root tests find only mild evidence in favour of the stationarity hypothesis, with asymmetric effects present in a few cases. After controlling for structural changes in the data generation process, the results point to stochastic stationarity of the series. Thus, in spite of relatively steady headline figures, the public balance processes exhibit substantial instability in the EU countries from Central and Eastern Europe
    Keywords: unit roots, structural breaks, budget balance, EU
    JEL: C32 E24
    Date: 2011–07–13
  4. By: Cheung, Diana; Padieu, Ysaline
    Abstract: By reducing risk on income, health insurance may reduce household precautionary behaviours and boost consumption. This paper evaluates the impact of a subsidized public health insurance scheme designed for rural residents, the New Cooperative Medical Scheme (NCMS), on consumption and saving behaviours in rural China. To do so, we use socioeconomic and demographic data from the China Health and Nutrition Survey and implement OLS, IV and Propensity Score Matching. We find that NCMS helps lowering household savings by enhancing total consumption expenditures, in particular food consumption and bride expenses with OLS and IV estimations. However, when we implement a propensity score matching coupled with a difference-in-difference approach to control for time-invariant unobservables, these results no longer hold. Thus, the scheme does not have a disincentive effect on savings nor an incentive effect on consumption, suggesting that the implementation of the insurance is too recent in 2006 to be trusted by rural Chinese households, to reduce income risk and enable them to lower their precautionary savings. --
    Keywords: Rural China,New Cooperative Medical Scheme,Saving,Consumption Propensity Score Matching,Difference-in-Difference
    JEL: C21 D1 I18 O53
    Date: 2011
  5. By: Haixiao Pan
    Abstract: Urban transport will have a great impact on sustainable development. China is now the leading producer of motorized vehicles, and people have gradually realized that we cannot sustain endless motorization. China has adopted a sustainable development policy for many years, promoting public transport in successive five-year plans.
    Date: 2011–05
  6. By: Voicu, Vicenția Georgiana
    Abstract: This paper proposes that, through a comparative analysis, performed on public administration in the Balkan area, to highlight the public system reform and its evolution, and the influence of European legislation and also the programs promoted by the European Union in this area. Balkan states, members of EU: Greece, Slovenia, Bulgaria and Romania, are perhaps more than any other EU countries, in the centre of interest regarding external development assistance including financial assistance. Public administration reform occurs slowly, through public administration extent and addressing to her inefficiencies. Abused discretionary power leads to inefficient and unreliable legal system. Therefore, an analysis of public management system in the Balkan States is still necessary. Good governance and public administration reform for these countries also include ensuring the application of a regulatory system and improve efficiency and accountability in the public sector. The process of reforming the public system implies an increased state intervention in terms of supporting economic stability in the development and implementation of public policies to support economic and social development. Therefore, countries in the Balkan region need investments especially in the reconstruction of public infrastructure, this representing the support of a state in general. This paper also aims, through a descriptive and exploratory research, to analyze the public reform in Albania, which is an emerging non-EU state. The study case will analyze the complexity of the public administration transition in this country.
    Keywords: European legislation; Balkans; public system reform
    Date: 2011
  7. By: Frigyes Ferdinand Heinz (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Desislava Rusinova (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: In this paper we estimate the degree of real wage flexibility in 19 EU countries in a wage Phillips curve panel framework. We find evidence for a reaction of wage growth to unemployment and productivity growth. However, due to unemployment persistence, over time the real wage response weakens substantially. Our results suggest that the degree of real wage flexibility tends to be larger in the central and eastern European (CEE) countries than in the euro area; weaker in downturns than during upswings. Moreover, there exists an inflation threshold, below which real wage flexibility seems to decrease. Finally, we find that part of the heterogeneity in real wage flexibility and unemployment might be related to differences in the wage bargaining institutions and more specifically the extent of labour market regulation in different country groups within the EU. JEL Classification: J31, J38, P5.
    Keywords: real wage flexibility, bargaining institutions, central and eastern Europe, euro area, panel heterogeneity.
    Date: 2011–07
  8. By: Kadri Männasoo; Jaanika Meriküll
    Abstract: The opportunity cost approach suggesting a countervailing cyclical effect between R&D and short-term investments is the subject of theoretical and empirical debate. We extend the discussion by investigating the impact of demand fluctuations and credit constraints on firms\' R&D in ten new EU member states from Central, Southern and Eastern Europe (CSEE). Using membership of the OECD as a proxy for the country\'s level of development we find more counter-cyclicality amongst the firms in non-OECD CSEE countries, while a similar but somewhat less accentuated counter-cyclical pattern of R&D behaviour emerges in the more advanced OECD-CSEE countries. Surprisingly, any adverse effect from credit constraints on firm\'s engagement in R&D is largely absent in CSEE countries
    Keywords: R&D cyclicality, demand shocks, credit constraints, Central and Eastern Europe
    JEL: G31 E32 O30 O52
    Date: 2011–07–19
  9. By: Nica, Aser
    Abstract: EU expansion has mainly reduced the capacity of Balkan states of adjusting their administrative structures and models promoted by the EU standards. The discussions around this theme are founded on traditions, economic, social, cultural, administrative values of the states in the Balkans in relation to those promoted in Western countries and the EU. Our study on the convergence of the public policy considers the description of how various factors and economic, social and political mechanisms act or compete in mitigating the differences or gaps between entities. Therefore the research attempts to highlight some elements of the convergence of national public policies between Romania, Bulgaria, Greece and Croatia in the labor market employment.
    Keywords: labor market employment; public policy; europeanisation; convergence
    Date: 2011
  10. By: Kemper, Niels; Klump, Rainer; Schumacher, Heiner
    Abstract: This article evaluates the impact of a land certification program on credit market outcomes in rural Vietnam. We hypothesize that the representation of property increases households' participation in formal credit markets. We compare credit market outcomes for certified and non-certified households controlling for socioeconomic and geographic characteristics, and use an instrumental variable approach exploiting a partial delay in program rollout. Certified households are more likely to borrow from formal banks with a collateral-based lending policy. There is no evidence for an effect on borrowing from formal sources without such a policy. Moreover, certified households pay lower interest rates on formal loans than non-certified households on formal and informal loans. --
    Keywords: Credit,Land reform,Vietnam
    JEL: C2 O1
    Date: 2011
  11. By: Zsolt Darvas (Bruegel, Institute of Economics - Hungarian Academy of Sciences); Valentina Kostyleva (OECD Public Governance and Territorial Development Directorate)
    Abstract: This paper studies the role of fiscal and monetary institutions in macroeconomic stability and budgetary control in central, eastern and south-eastern European countries (CESEE) in comparison with other OECD countries. CESEE countries tend to grow faster and have more volatile output than non-CESEE OECD countries, which has implications for macroeconomic management: better fiscal and monetary institutions are needed to avoid pro-cyclical policies. The paper develops a Budgetary Discipline Index to assess whether good fiscal institutions underpin good fiscal outcomes. Even though most CESEE countries have low scores, the debt/GDP ratios declined before the crisis. This was largely the consequence of a very favourable relationship between the economic growth rate and the interest rate, but such a favourable relationship is not expected in the future. Econometric estimations confirm that better monetary institutions reduce macroeconomic volatility and that countries with better budgetary procedures have better fiscal outcomes. All these factors call for improved monetary institutions, stronger fiscal rules and better budgetary procedures in CESEE countries.
    Keywords: CESEE countries; Budgetary Discipline Index; budget process; fiscal institutions; budgetary institutions; monetary institutions; macroeconomic stability; econometric analysis; budgetary procedures; fiscal outcomes; fiscal rules.
    JEL: E32 E50 H11 H60
    Date: 2011–06
  12. By: Naumov, Sergey
    Abstract: Investigation of the new innovative regulatory instruments of social and political marketing aimed at encouragement of social initiative becomes topical in the context of modernization in the Russian Federation. The brands created by the state are among the tools that are targeted at promotion of socio-political interests. The branding of the ‘Russian Nation' in the form of the common civic identity meets a number of obstacles. The study analyses the ethnic background of the Russian Federation and how it determines adoption of the brand ‘Russian' Nation' by various population groups.
    Keywords: Mass Consciousness; National Identity; Ethnic Communities; Socio-Political Brands
    Date: 2011
  13. By: Cornea, Cătălin-Ionuț
    Abstract: Intrinsic motivation is widely considered by public administration scholars as fundamental for the Public Service Motivation (PSM). In apparently contradiction with the theory of PSM, the extrinsic motivation techniques, such as financial incentives, function better in Romanian public organizations, the reason being in general connected with the payment level for the public servants and their expectations for the work performed. In the context of new legal obligations arisen in the period of joining the European Union, Romanian public authorities recruited more employees. After 2008, influenced by lower budgets and political changes, this dynamic of human resources was inverted, in some places with very significant personnel fluctuations, leading to major misbalances of public service. Public servants cannot be motivated if they do not have the intrinsic motivation specific for the work in public service as defined by PSM theory. Thus, we consider that the actual recruiting system of public servants in Romania need to be reformed to introduce in public sector well equipped individuals. Although intrinsic, PSM is not immutable and can be lost. Public servants can loose PSM because of extrinsic motivational factors (low salary, lack of promotion, permanent structural changes of the organization, manager's disregard for procedures / law).
    Keywords: public administration; reform; human resources; public service motivat ion
    Date: 2011
  14. By: Nachev, Ivan
    Abstract: This text considers the challenges in front of Bulgarian public administration in the light of the expanding European administrative space. It makes an attempt at outlining the way for changing the pattern of Bulgaria's institutional environment and the necessity of significant change in the central-local authorities balance. What about the responsibilities at national level (place of state), the behavior of local and regional authorities in the European context, strategic challenges facing the administration. The text presents the role of local and regional authorities, management capabilities in partnership, aims and priorities, problematic aspects and necessary changes.
    Keywords: challenges; European administrative space; administration; Bulgaria
    Date: 2011
  15. By: Sandu, Steliana
    Abstract: The convergence of Romanian R&D and Innovation system within the European Research Area has been an important goal of policy measures taken within the last decade, aiming to increase its performance and catching up the more developed EU countries. The process of decision and policy design have been strongly influenced by policy developments in the EU taking into account the priorities at EU level, Framework Programmes or key policy documents issued by the European Commission. Romanian policy documents such as the National Strategy of R&D and Innovation (2007-2013), the National Plan for RDI (2007-2013), other National Reform Strategies have an overall emphasis on similar to many of the main strands of EU policy in the research and innovation field. Starting with 2000 year, the European Research Area has become a key reference point for research policy in Europe, aiming to overcome the fragmentation of research activities, programmes and policies across Europe. The globalisation of economy and communications, technological progress and its social implications led to the creation of the European Research Area , as a base for the convergence of national RD&I systems. Starting with 2000, the European Research Area has played a consistent role in determining the R&D policy in Romania regarding both of them, to mobilization of resources and to excellence and exploitability of research results. The advantages offered by the integration into ERA are directly related to the participation of Romania in the single labour market for researchers, benefiting from a high quality R&D infrastructure, sharing knowledge and optimising programmes and priorities. The R&D related objectives inserted in different national strategies offer answers, more or less suitable, to the requirements of the Lisbon Agenda. This has given a strong impetus to increase the share of R&D expenditures in GDP, as an important target, inserted in each of mentioned strategies. The Lisbon Strategy 2010 also, have offered a set of benchmarks for the measurement of competitiveness, as well as best practices, which aim at avoiding risks for the R&D activity. The European initiative of creation of Innovation Union is a new challenge for Romanian research and innovation system, confronted with serious weaknesses during the crisis, which affects its performance and the governance of research activity, especially in the private sector. The paper is focused on the analysis of the present Romanian R&D and innovation performance, evaluating the gaps in comparison with average EU and with the best performers, using a system of relevant indicators. The paper analyses the progress made in the last ten years in achieving the convergence of European RD&I systems, the factors that have accelerated or slowed down the process, laying the stress on Romania's position in closing the gaps that separate it from European average and from the leaders in this area. The conclusion of this paper could be used by policy makers in order to a better design, monitoring, coordination and implementation of the policies directed to reach the strategic goals of the Innovation Union.
    Keywords: innovation gaps; convergence of RD&I systems; Innovation Union; European Research Area (ERA)
    Date: 2011
  16. By: Balasubramaniam, Vimal (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy); Shah, Ajay (National Institute of Public Finance and Policy)
    Abstract: The rise of China in the world economy and in international trade has raised the possibility of a rise of the Yuan as an international currency, particularly after the Chinese authorities have undertaken policy initiatives such as Yuan settlement and Yuan swap lines. In this paper, we measure one dimension of Yuan internationalisation: the role of the Yuan in the exchange rate arrangements of other economies. While the magnitudes are small, our findings show that as many as 34 currencies in the world have been sensitive to movements in the Yuan. This suggests that the Yuan potentially has a significant role to play in global exchange rate arrangements. Contrary to popular belief, however, we find a limited role of the Yuan among Asian. economies.
    Keywords: Renminbi ; Yuan ; Exchange rate regime ; Internationalisation ; East Asia
    JEL: F31 F33
    Date: 2011–05
  17. By: Matei, Ani; Tuca, Mihaela
    Abstract: Corporate Social Responsibility is no longer an object of novelty in literature or the business sector. The practices in this matter have became a new area of activity expansion and a new way that companies use to strengthen their image, consumer appreciation and even employees motivation. The present paper proposes an analyses of the literature, a comparative study and a summary of the international organizations view on the matter.
    Keywords: Country report; Theory Development; Corporate Social Responsibility (C SR)
    Date: 2011
  18. By: Nordman, Christophe J.; Nguyen, Huu Chi; Roubaud, François
    Abstract: In spite of its predominant economic weight in developing countries, little is known about informal sector income dynamics vis-à-vis the formal sector. Some works have been done in this field using household surveys, but they only consider some emerging Latin American countries and a few African countries. As a matter of consequence, there is still no way to generalize the (diverging) results to other part of the developing world. Taking advantage of the rich VHLSS dataset in Vietnam, in particular its three waves panel data (2002, 2004, 2006), we assess the magnitude of various formal/informal earnings gaps while addressing heterogeneity issues at three different levels: the worker, the job (wage employment vs. selfemployment) and the earnings distribution.We estimate fixed effects and quantile regressions to control for unobserved individual characteristics. Our results suggest that the informal sector earnings gap highly depends on the workers' job status and on their relative position in the earnings distribution. Penalties may in some cases turn into premiums. By comparing our results with studies in other developing countries, we draw conclusions highlighting the Vietnam's labour market specificity. --
    Keywords: informal employment,earnings gap,transition matrix,quantile regressions,panel data,Vietnam
    JEL: J21 J23 J24 J31 O17
    Date: 2011
  19. By: Nicolae, Andrei
    Abstract: Thinking of the importance of local administration for each state within the framework of the European Union I find it of great interest to carefully analyse the reflection of the European principles for public administration, especially the ones regarding efficiency and effectiveness, in a former communist such as Romania. This paper will address these two concepts also in regards to the way they are used by the public management theoreticians. The study and practice of public administration necessarily involves the clarification and updating of several important concepts. Research using an ambiguous or inconsistent conceptualization of those concepts has the potential of producing questionable findings that can limit the interpretive power of the analysis. Difficulty conceptualizing public sector efficiency and effectiveness in the context of democracy and governance is due in part to varying administrative and political values.
    Keywords: public management; local administration; effectiveness; efficiency; re form
    Date: 2011
  20. By: Kröger, Antje; Meier, Kristina
    Abstract: The financial crisis in 2008/2009 had a presumably substantial influence on the everyday social and economic life of many Tajik people, including their behavior in the labor market. In our paper, we aim to study the impact of the economic crisis on individual labor market decisions. This is the first study investigating the impact of the financial crisis in a transition country using a unique panel data set from Tajikistan. We find that the global financial crisis had a strong impact on employment and migration patterns in Tajikistan. Our results show that regular wage employment and self-employment with hired labor decreased while piece-based wage employment and unpaid family work increased during the crisis. Further, households are more likely to send a family member abroad suggesting that the dependency on sending migrants abroad grows in times of economic turmoil. In combination with increased migration risk our results show that the Tajik labor market has largely been affected by the global financial crisis. --
    Keywords: financial crisis,wage employment,migration,Tajikistan
    JEL: C23 J24 J16 O10
    Date: 2011
  21. By: Matei, Lucica; Sandu, Cristina
    Abstract: The social enterprise knows a dynamic of organization and functioning, under different legal forms, starting from NGO to enterprise, covering the domain of public services, functioning independently or in public sector - private sector partnership. It plays a dominant role in the economic growth, in solving the social problems, in the process of knowing the needs for goods and public services with social impact on special groups. The aim of this paper is, starting from the theoretical concepts of social enterprise experiences, to analyze the forms of social enterprises developed through the projects undertaken in Romania and the ways of using social marketing in designing and developing these activities
    Keywords: public-private partnership; promotion; target groups; segmentation; social enterprise
    Date: 2011
  22. By: Steiner, Susan; Esenaliev, Damir
    Abstract: In the light of violent clashes between Kyrgyz and ethnic Uzbeks in Kyrgyzstan in June 2010 we investigate the association between economic welfare and ethnicity in this country. We intend to answer two questions. First, are Uzbek households better off than Kyrgyz households, as is often claimed in the media and also by some academics? Second, what are the correlates of household welfare in recent years, and how have these changed in comparison with the 1990s? We use data from two cross-sections of the Kyrgyz Integrated Household Survey (2003 and 2005) and run OLS regressions using three measures of welfare, i.e. per capita consumption, per capita income, and an asset index. We find some evidence for higher welfare of Uzbek headed households compared with their Kyrgyz counterparts, but mainly in rural areas. In the south of the country, where most Uzbeks live and where the violence took place, there appears to be no substantial difference in welfare. This is clearly in contrast to what was commonly propagated in the media and what most Kyrgyz tend to think. In terms of the other correlates of welfare, we find that household size, educational attainment of adults, and residence outside the capital and the neighbouring Chui oblast are most importantly connected with welfare. This coincides with findings from earlier studies using data from a decade earlier. --
    Keywords: Household welfare,ethnicity,Kyrgyzstan
    JEL: D74 P36 D12
    Date: 2011
  23. By: Finn Tarp; Thomas Markussen
    Abstract: This paper uses household panel data from rural Vietnam to explore the effects of having a relative in a position of political or bureaucratic power on farmers. agricultural investment decisions. Our main result is that households significantly increase their investment in land improvement as a result of relatives moving into public office. Connections to office holders appear to be important for investment because they strengthen de facto land property rights and improve access to off-farm employment and to informal loans. The findings underline the importance of informal networks for economic behaviour in environments with developing institutions and markets. They also suggest the presence of an untapped potential for economic development: if households without connections could obtain equally strong property rights and accessto credit and insurance as the well-connected households, investment levels would risesubstantially.
    Keywords: political connections, informal networks, land property rights, investment,credit, Vietnam
    Date: 2011
  24. By: CIBOTARU, Vitalie; NEUMANN, Rainer; CUHAL, Radu; UNGUREANU, Mihai
    Abstract: It has been noted that there is an inconsistency between Moldova's monetary authorities' declared pursuit of price stability and the de facto exchange rate peg. This paper looks into the exchange rate regime of the Moldovan leu (MDL) aiming to identify the de facto regime, to test whether it can be described by a basket peg (and, if so, to determine the composition of this basket), and whether the regime has been stable over time (and, if not, to detect and date regime shifts). The methodologies used in our analysis include the celebrated Frankel-Wei regression, a Kalman filter algorithm and empirical fluctuation process. We show that MDL generally follows a peg to USD with varying implicit weight and fluctuation bands. The paper is organized as follows. Section 1 provides an insight into the exchange rate regime of Moldova by identifying the main trends and developments in its foreign exchange market. Section 2 reviews the economic literature on exchange rate regime identification. Section 3 describes the data used in the analysis. Section 4 explains the methodologies. Section 5 provides an interpretation of the results obtained. Finally, Section 6 summarizes the main findings.
    Keywords: price stability; exchange rate regime; inflation; currency basket.
    JEL: G2
    Date: 2011

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