Analysis of exchange rate policy choices in transition economies and their consequences

This bachelor’s thesis examines the role of the central bank and monetary policy in ensuring macroeconomic stability in transition economies, using the cases of the Czech Republic, Poland, and Russia in the period following the collapse of the Soviet Union. The theoretical part summarizes the main approaches to choosing an exchange rate regime and discusses arguments for and against fixed and floating exchange rates under conditions of economic transformation. The empirical part compares developments in inflation, real GDP, the current account balance, and the real effective exchange rate in the countries under study, and analyzes central banks’ responses to key crisis episodes—particularly the currency turbulence of the mid-1990s and the global financial crisis of 2008–2009. The results indicate that fixed exchange rate regimes can help stabilize expectations in the early phase of transformation; however, in the absence of structural reforms and timely increases in exchange rate flexibility, they lead to the accumulation of imbalances and painful crises. The thesis therefore confirms that a central bank can significantly influence macroeconomic stability, but cannot, over the long term, substitute for missing fiscal and structural reforms.