After disinflation has been achieved, agents who form more sophisticated forecasts have lower confidence in the sustainability of a peg compared to less sophisticated agents. Furthermore, sustained financial stability leads to a declining proportion of sophisticated agents. Thus, the credibility...

We use unique survey data from Bulgaria's currency board to examine the reasons for persistent incomplete credibility of a financial stabilization regime. Although it produced remarkably positive effects in terms of sustained low inflation since 1997, the currency board has not achieved full...