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Constraints on Enterprise Liquidity and Its Impact on the Monetary Sector in Formerly Centrally Planned Economies*

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  • István Ábel

    (Budapest University of Economics)

  • Pierre L Siklos

    (Wilfrid Laurier University)

Abstract

This paper examines the role and effectiveness of monetary policy in a transition economy. We demonstrate that the type of restrictive policy pursued by the central bank plays a critical role but one which is likely to reduce the chances of a successful transition to a market economy. We examine interenterprise credit and how it is treated in a reformed banking system by noting the relationship between trade credit and inflation. While the implications of this relationship are well known they seem to have been largely forgotten by policymakers who have adopted a monetary policy consonant with those in Western industrialized countries. The paper also illustrates the consequences of reformers assuming a well-functioning market economy has been achieved when this is clearly not the case.

Suggested Citation

  • István Ábel & Pierre L Siklos, 1994. "Constraints on Enterprise Liquidity and Its Impact on the Monetary Sector in Formerly Centrally Planned Economies*," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 36(1), pages 13-32, April.
    • Handle: RePEc:pal:compes:v:36:y:1994:i:1:p:13-32
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    Cited by:

    1. Buch, Claudia M., 1995. "Monetary policy and the transformation of the banking system in Eastern Europe," Kiel Working Papers 676, Kiel Institute for the World Economy (IfW Kiel).
    2. Buch, Claudia M., 1996. "Russian monetary policy: Assessing the track record," Kiel Working Papers 786, Kiel Institute for the World Economy (IfW Kiel).
    3. Luoana D. Santarossa, 2001. "Arrears as a Sign of Financial Repression in Transition Economies - The Case of Romania," CERT Discussion Papers 0104, Centre for Economic Reform and Transformation, Heriot Watt University.

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