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Intertemporal Speculation , Shortages annd the Political Economy of Price Reform

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Author Info

  • Van Wijnbergen, S.

Abstract

How should countries like Poland or the U.S.S.R. move toward price flexibility, gradually or in a "big bang"? Why is it that Governments committed to eventual price flexibility so often seem to be unable to let go of "temporary" controls? How can one explain that after price increases early in a program of price controls, one often sees output rise while at the same time shortages seem to increase also? This paper argues that intertemporal speculation, hoarding and the political economy of price reform go a long way toward explaining all these puzzles. The author shows that the interaction between shortages and political vulnerability of reformist governments so early perceptions of failure make for a strong argument against gradualism in the decontrol of prices. Copyright 1992 by Royal Economic Society.

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Bibliographic Info

Paper provided by Tilburg - Center for Economic Research in its series Papers with number 9149.

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Length: 31 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:fth:tilbur:9149

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Postal: TILBURG UNIVERSITY, CENTER FOR ECONOMIC RESEARCH, 5000 LE TILBURG THE NETHERLANDS.
Phone: 31 13 4663050
Fax: 31 13 4663066
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Web page: http://center.uvt.nl/
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Keywords: economic reform ; prices ; speculation;

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Cited by:
  1. Digdowiseiso, Kumba, 2010. "The transition of China and Ussr: A political economy perspective," MPRA Paper 22561, University Library of Munich, Germany.
  2. Funke, Norbert, 1993. "Timing and sequencing of reforms: Competing views," Kiel Working Papers 552, Kiel Institute for the World Economy.
  3. Diwan, Ishac & Saldanha, Fernando, 1991. "Long term prospects in Eastern Europe : the role of external finance in an era of change," Policy Research Working Paper Series 695, The World Bank.
  4. Filippov, Mikhail G, 2002. " Russian Voting and the Initial Economic Shock of Hyperinflation," Public Choice, Springer, vol. 111(1-2), pages 73-104, March.
  5. Mehlum, Halvor, 2001. "Speed of adjustment and self-fulfilling failure of economic reform," Journal of International Economics, Elsevier, vol. 53(1), pages 149-167, February.
  6. Djajic, Slobadan, 1999. "Shortages, Hoarding and Parallel-Market Premia in an Economy with Administered Prices," Review of Development Economics, Wiley Blackwell, vol. 3(1), pages 1-10, February.
  7. Sweder van Wijnbergen & Tim Willems, 2012. "Learning Dynamics and the Support for Economic Reforms: Why Good News can be Bad," Tinbergen Institute Discussion Papers 12-043/2, Tinbergen Institute.
  8. Berkowitz, Daniel, 1996. "On the persistence of rationing following liberalization: A theory for economies in transition," European Economic Review, Elsevier, vol. 40(6), pages 1259-1279, June.
  9. Cesar Martinelli, 2001. "Essays on Political Economy of Political Reform," Levine's Working Paper Archive 625018000000000135, David K. Levine.
  10. Sweder van Wijnbergen & Tim Willems, 2012. "Learning Dynamics and the Support for Economic Reforms: Why Good News can be Bad," Tinbergen Institute Discussion Papers 12-043/2, Tinbergen Institute.
  11. Bertocchi, Graziella & Spagat, Michael, 1997. "Structural uncertainty and subsidy removal for economies in transition," European Economic Review, Elsevier, vol. 41(9), pages 1709-1733, December.
  12. Mehlum, Halvor, 2002. "Zimbabwe: Investments, credibility and the dynamics following trade liberalization: on the investment response during trade reform," Economic Modelling, Elsevier, vol. 19(4), pages 565-584, August.
  13. Goldberg, Linda S. & Karimov, Il'dar, 1997. "Black markets for currency, hoarding activity and policy reforms," Journal of International Economics, Elsevier, vol. 42(3-4), pages 349-369, May.
  14. Gilles Saint-Paul, 2000. "The "New Political Economy": Recent Books by Allen Drazen and by Torsten Persson and Guido Tabellini," Journal of Economic Literature, American Economic Association, vol. 38(4), pages 915-925, December.
  15. Mehlum, Halvor, 2001. "Capital accumulation, unemployment, and self-fulfilling failure of economic reform," Journal of Development Economics, Elsevier, vol. 65(2), pages 291-306, August.
  16. Cesar Martinelli & Mariano Tommasi, 1993. "Sequencing of Economic Reforms in the Presence of Political Constraints," UCLA Economics Working Papers 701, UCLA Department of Economics.

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