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Stabilization and Growth in Transition Economies: The Early Experience

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  • Stanley Fischer
  • Ratna Sahay
  • Carlos A. Vegh

Abstract

The authors analyze the growth and stabilization experience in twenty-six transition economies in Eastern Europe, the former Soviet Union, and Mongolia for the period 1989-94. Inflation rates have declined significantly in most countries following an inflation stabilization program. Typically, stabilization has been followed by growth within two years; and growth does not occur without stabilization. Reducing inflation thus appears to be a precondition for growth. An econometric analysis of the short-run determinants of inflation and growth illustrates the key roles of fixed exchange rates, improved fiscal balances, and structural reforms in spurring growth and lowering inflation.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.10.2.45
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 10 (1996)
Issue (Month): 2 (Spring)
Pages: 45-66

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Handle: RePEc:aea:jecper:v:10:y:1996:i:2:p:45-66

Note: DOI: 10.1257/jep.10.2.45
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  1. Yavlinsky Grigory & Braguinsky Serguey, 1994. "The Inefficiency of Laissez-Faire in Russia: Hysteresis Effects and the Need for Policy-Led Transformation," Journal of Comparative Economics, Elsevier, vol. 19(1), pages 88-116, August.
  2. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
  3. Aghion, P. & Blanchard, O.J., 1993. "On the Speed of Transition in Central Europe," Working papers 93-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
  5. Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange Rate-Based Stabilization: An Analysis of Competing Theories," NBER Working Papers 5197, National Bureau of Economic Research, Inc.
  6. Castanheira, Micael & Roland, Gérard, 1996. "The Optimal Speed of Transition: A General Equilibrium Analysis," CEPR Discussion Papers 1442, C.E.P.R. Discussion Papers.
  7. Alan Gelb & Gary Jefferson & Inderjit Singh, 1993. "Can communist economies transform incrementally? The experience of China," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(4), pages 401-435, December.
  8. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
  9. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  10. Sachs, J.D. & Woo, W.T., 1994. "Structural Factors in the Economic Reforms of China, Eastern Europe and the Former Soviet Union," Papers 94-01, California Davis - Institute of Governmental Affairs.
  11. Kornai, J., 1993. "Transformational Recession; A General Phenomenon Examined Through the Example of Hangary's Development," Harvard Institute of Economic Research Working Papers 1648, Harvard - Institute of Economic Research.
  12. Cohen, Daniel, 1995. "The Transition in Russia: Successes (Privatization, Low Unemployment...) and Failures (Mafias, Liquidity Constraints...). A Theoretical Analysis," CEPR Discussion Papers 1224, C.E.P.R. Discussion Papers.
  13. Carlos A. Végh, 1992. "Stopping High Inflation: An Analytical Overview," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 626-695, September.
  14. Kent Osband, 1991. "Index Number Biases During Price Liberalization," IMF Working Papers 91/76, International Monetary Fund.
  15. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters, in: Inflation: Causes and Effects, pages 41-98 National Bureau of Economic Research, Inc.
  16. Ratna Sahay & Carlos A. Vegh, 1996. "Inflation and stabilization in transition economies: An analytical interpretation of the evidence," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(1), pages 75-108.
  17. Stanley Fischer & Alan Gelb, 1991. "The Process of Socialist Economic Transformation," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 91-105, Fall.
  18. Stanley Fischer, 1994. "Russia and the Soviet Union Then and Now," NBER Chapters, in: The Transition in Eastern Europe, Volume 1, pages 221-258 National Bureau of Economic Research, Inc.
  19. Alan Gelb & Gary Jefferson & Inderjit Singh, 1993. "Can Communist Economies Transform Incrementally? The Experience of China," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 87-150 National Bureau of Economic Research, Inc.
  20. de Melo, Martha & Denizer, Cevdet & Gelb, Alan, 1996. "From plan to market : patterns of transition," Policy Research Working Paper Series 1564, The World Bank.
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