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From Centrally-Planned to Market Economies

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Author Info

  • Jacob A. Frenkel
  • Guillermo Calvo

Abstract

This paper deals with the early stages of transformation of centrally-planned economies (CPEs) into market economies during which expectations play a key role. It focuses on the transitional phase during which the economy is not any more a CPE but has not yet become a market economy. During this phase the economy is referred to as a “previously centrally-planned economy” (PCPE). A simple model is developed to analyze the consequences of expected price liberalization. The CPEs undergoing transformation lack depth and breadth of financial markets. The analysis illustrates the benefits from an early development of such markets. It demonstrates the cost of a fine-tuning strategy and the benefits from a quick implementation of price reform. The paper also examines means to reduce “liquidity overhang,” and shows that they involve taxation of one form or another. The consequences of privatization are analyzed and the benefits from an early development of an effective tax system highlighted.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 91/17.

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Length: 36
Date of creation: 01 Feb 1991
Date of revision:
Handle: RePEc:imf:imfwpa:91/17

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Cited by:
  1. Cox, Donald & Jimenez, Emmanuel & Okrasa, Wlodek, 1997. "Family Safety Nets and Economic Transition: A Study of Worker Households in Poland," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(2), pages 191-209, June.
  2. Christos Papazoglou & Eric J. Pentecost, 2003. "The Dynamic Adjustment of a Transition Economy in the Early Stages of Transformation," Working Papers 03, Bank of Greece.
  3. Guillermo A. Calvo & Jacob A. Frenkel, 1991. "Credit Markets, Credibility, and Economic Transformation," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 139-148, Fall.

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