Disinflation and economic integration in emerging European economies

At the end of the ‘80s, Central European countries started to abandon their administratively fixed exchange rates and gradually adopted new monetary regimes with more or less emphasis on the exchange rate, inflation and growth targets. This study analyses the economic background of the choice of monetary regime in these countries and their success in curbing inflation. A panel examination delivered by the study of 15 Central and Southern European countries – similarly to De Grauwe and Schnabl (2008) – provides evidence of inflation targeting as being an effective policy to reduce inflation, however, reveals biased results concerning economic performance in the case of both inflation targeting and exchange rate targeting. Finally, the paper investigates the way the 15 Central European and South (Eastern) European countries are integrated with the current EU members economically, to weigh the pros and cons of abandoning the independent monetary policy. The paper touches upon how economic and financial diplomacy can contribute to these countries’ economic integration with the eurozone and the EU27 in general.