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The Path of Output from Plan to Market

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  • Gylfason, Thorvaldur

    (Department of Economics, University of Iceland)

Abstract

This paper is intended to clarify the contribution of macroeconomic stabilization and structural adjustment to the transformation from plan to market in Central and Eastern Europe and elsewhere. Four main points emerge. First, increased price stability improves the utilization of capital and thus increases the level of output at full employment in the long run, even though output decreases initially. Second, the static output gain from stabilization is captured in a simple formula in which the gain is approximately proportional to the square of the orginal inflation distortion. Third, successful stabilization increases the rate of growth of output per head, and not only its level, in the presence of constant returns to capital in a broad sense. Fourth, substitution of plausible parameter estimates into the simple formulae reflecting the gains from stabilization indicate that the static and dynamic output gains can be substantial.

Suggested Citation

  • Gylfason, Thorvaldur, 1995. "The Path of Output from Plan to Market," East European Series 19, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsrop:19
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    File URL: https://irihs.ihs.ac.at/id/eprint/819
    File Function: First version, 1995
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    Cited by:

    1. Ariane Tichit, 1998. "Reprise économique dans les pays post-communistes : application d'un modèle de durée," Économie et Prévision, Programme National Persée, vol. 136(5), pages 73-92.

    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform

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