Fear of Floating

AbstractThis paper uses unique household survey data to investigate the expected effects of a switch from a fixed exchange rate regime to a floating exchange rate regime in Bulgaria during the global financial crisis. The data show that the public associated such a switch with a contraction of output, higher prices, a decline in exports, and an overall deterioration of economic welfare. These expectations fuelled a strong opposition to removing the fixed exchange rate. Thus, the survey data allow us to investigate why a switch from a fixed exchange rate to a floating exchange rate did not take place.