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Macroeconomic Equilibrium and Reform in a Transitional Economy

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  • Dixon, Huw David

Abstract

We build a general equilibrium macroeconomic model of a transitional economy to reflect five stylized facts. Among these are that central planning has left a legacy of highly concentrated industry and a residue of price controls and rationing. An `almost Classical' dichotomy obtains in the model: monetary expansion leaves output and unemployment unchanged (despite the existence of unemployment), though leisure time declines. The economy displays a high degree of complementarity between the state-controlled sector and the private sector, however, giving rise to multiplier effects. We analyse the effects of price liberalization and privatization in this framework.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 758.

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Date of creation: Jan 1993
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Handle: RePEc:cpr:ceprdp:758

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Keywords: Imperfect Competition; Macroeconomics; Transitional Economy;

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References

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  1. Feltenstein, Andrew & Farhadian, Ziba, 1987. "Fiscal Policy, Monetary Targets, and the Price Level in a Centrally Planned Economy: An Application to the Case of China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(2), pages 137-56, May.
  2. Elhanan Helpman, 1987. "Macroeconomic Effects of Price Controls: The Role of Market Structure," NBER Working Papers 2434, National Bureau of Economic Research, Inc.
  3. Fender, J. & Laing, D., 1991. "The Transition from Central Planning : An Intertemporal Macroeconomic Model," Papers 1-91-2, Pennsylvania State - Department of Economics.
  4. Bennett, John, 1994. "Queuing and the Price Level under Repressed Inflation," Oxford Economic Papers, Oxford University Press, vol. 46(1), pages 68-82, January.
  5. Weitzman, Martin L, 1982. "Increasing Returns and the Foundations of Unemployment Theory," Economic Journal, Royal Economic Society, vol. 92(368), pages 787-804, December.
  6. Feltenstein, Andrew & Ha, Jiming, 1991. "Measurement of repressed inflation in China : The lack of coordination between monetary policy and price controls," Journal of Development Economics, Elsevier, vol. 36(2), pages 279-294, October.
  7. Weitzman, Martin L, 1991. "Price Distortion and Shortage Deformation, or What Happened to the Soap?," American Economic Review, American Economic Association, vol. 81(3), pages 401-14, June.
  8. Doyle, Christopher, 1993. "The Distributional Consequences of Russia's Transition," CEPR Discussion Papers 839, C.E.P.R. Discussion Papers.
  9. Dixon, Huw David, 1991. "Macroeconomic policy in a large unionised economy," European Economic Review, Elsevier, vol. 35(7), pages 1427-1448, October.
  10. Feltenstein, Andrew & Lebow, David & van Wijnbergen, Sweder, 1990. "Savings, Commodity Market Rationing, and the Real Rate of Interest in China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(2), pages 234-52, May.
  11. Bennett, John & Dixon, Huw David, 1995. "Macroeconomic equilibrium and reform in a transitional economy," European Economic Review, Elsevier, vol. 39(8), pages 1465-1485, October.
  12. Osband, Kent, 1992. "Economic Crisis in a Shortage Economy," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 673-90, August.
  13. David Lipton & Jeffrey D. Sachs, 1990. "Creating a Market Economy in Eastern Europe: The Case of Poland," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 75-148.
  14. Kemp, Murray C. & Long, Ngo Van, 1990. "The relaxation of price controls, the general price level, and welfare," Journal of Macroeconomics, Elsevier, vol. 12(2), pages 221-246.
  15. S Estrin & P Hare, 1992. "Firms in Transition: Modelling Enterprise Adjustment," CEP Discussion Papers dp0089, Centre for Economic Performance, LSE.
  16. Landesmann, Michael & Székely, Istvan, 1991. "Industrial Restructuring and the Reorientation of Trade in Czechoslovakia, Hungary and Poland," CEPR Discussion Papers 546, C.E.P.R. Discussion Papers.
  17. Eduardo Borensztein & Dimitri G. Demekas & Jonathan D. Ostry, 1993. "An Empirical Analysis of the Output Declines in Three Eastern European Countries," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 1-31, March.
  18. Stahl, Dale II & Alexeev, Michael, 1985. "The influence of black markets on a queue-rationed centrally planned economy," Journal of Economic Theory, Elsevier, vol. 35(2), pages 234-250, August.
  19. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  20. Sah, Raaj Kumar, 1987. "Queues, Rations, and Market: Comparisons of Outcomes for the Poor and the Rich," American Economic Review, American Economic Association, vol. 77(1), pages 69-77, March.
  21. Hart, Oliver, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 109-38, February.
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Citations

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Cited by:
  1. Yener Kandogan, 1999. "Lingering effects of central planning on trade? Evidence from current CIS trade patterns," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 135(3), pages 501-521, September.
  2. Fung, Michael K. Y. & Ho, Wai-Ming & Zhu, Lijing, 2000. "Stagflationary effect of government bond financing in the transforming Chinese economy: a general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 61(1), pages 111-135, February.
  3. John Bennett & Huw Dixon & Helen X.Y. Hu, 2008. "The Effects of Reforming the Chinese Dual-Track Price System," CEDI Discussion Paper Series 08-14, Centre for Economic Development and Institutions(CEDI), Brunel University.
  4. Bennett, John & Dixon, Huw David, 1995. "Macroeconomic equilibrium and reform in a transitional economy," European Economic Review, Elsevier, vol. 39(8), pages 1465-1485, October.
  5. Bennett, John & Dixon, Huw & Hu, Helen X.Y., 2013. "The transition from dual-track pricing to a market system: Winners and losers," Economic Systems, Elsevier, vol. 37(1), pages 30-44.

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