A Monetary Model of a Shortage Economy
AbstractDuring the transition from centrally planned economies to market economies, many countries have experienced macroeconomic instability. This paper develops a monetary model to show how macroeconomic stability and instability can materialize in a rigidly planned economy with inherent structural imbalances and an irrational price system. The study shows that, without hardening enterprise budget constraints, wage and price liberalization may destabilize an economy and lead to persistent budget deficits and inflation. The paper also analyzes household savings and money demand in a shortage economy, clarifying the somewhat confusing concept of "monetary overhang" in the literature.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.
Volume (Year): 40 (1993)
Issue (Month): 2 (June)
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Find related papers by JEL classification:
- D59 - Microeconomics - - General Equilibrium and Disequilibrium - - - Other
- P22 - Economic Systems - - Socialist Systems and Transition Economies - - - Prices
- P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
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