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How Tight is too Tight? a Look At Welfare Implications of Distortionary Policies in Uzbekistan

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  • David A. Grigorian
  • Edward R. Gemayel

Abstract

Since independence in 1991, Uzbekistan has pursued a gradual approach to the transition from planned to market economy. This approach relied heavily on trade controls, directed credit, and large public investments. A number of financial sector measures were also instituted that distorted resource allocation and increased transaction costs. As a result, while possibly preventing the contraction of output in the early 1990s, these policies led to disappointing economic outcomes and social conditions. The paper reviews the underlying distortions and presents survey-based evidence to support their existence and their detrimental impact on economic activity. Looking forward, the paper-using a representative agent framework to model existing financial sector distortions-offers some guidance regarding the likely implications of eliminating the observed distortions on key aggregate variables. It suggests that the elimination of these distortions will enhance welfare and lead to increased investment and capital stock.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/239.

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Length: 32
Date of creation: 01 Dec 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/239

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Keywords: Centrally planned economies; Economic models; Transition economies; foreign exchange; banking; inflation; banking sector; bank accounts; black market; money supply; bank account; banking system; bank deposits; macroeconomic stability; foreign exchange market; foreign currency; collection service; rate of inflation; real rate of interest; transaction cost; bank money; inflation dynamics; monetary economics; bank customers; banking services; price inflation; bank runs; central banking; interbank market; monetary policy; gdp deflator; real interest rate; bankers; high interest rates; inflationary pressures; money growth; bank policy; state enterprise;

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References

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  1. Feenstra, Robert C, 1985. "Anticipated Devaluations, Currency Flight, and Direct Trade Controls in a Monetary Economy," American Economic Review, American Economic Association, vol. 75(3), pages 386-401, June.
  2. International Monetary Fund, 2000. "Welfare Effects of Uzbekistan's Foreign Exchange Regime," IMF Working Papers 00/61, International Monetary Fund.
  3. Richard Pomfret, 2003. "Economic Performance in Central Asia Since 1991: Macro and Micro Evidence1," Comparative Economic Studies, Palgrave Macmillan, vol. 45(4), pages 442-465, December.
  4. Katrin Elborgh-Woytek & Julian Berengaut, 2005. "Who is Still Haunted by the Specter of Communism? Explaining Relative Output Contractions Under Transition," IMF Working Papers 05/68, International Monetary Fund.
  5. Stephen Tokarick, 2006. "Does Import Protection Discourage Exports?," IMF Working Papers 06/20, International Monetary Fund.
  6. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
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Cited by:
  1. Dildora Tadjibaeva & Iroda Komilova, 2009. "The influence of tax reforms on the prosperity of micro-firms and small businesses in Uzbekistan," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 16(2), pages 31-64, December.

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