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The dynamic adjustment of a transition economy in the early stages of transformation

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  • Papazoglou, Christos
  • Pentecost, Eric J.

Abstract

This paper develops a model of a representative transition economy to explain the stylised facts of output declines and real exchange rate appreciation in the early stages of transformation. These facts can be explained by supply-side shocks, interest rate liberalisation or a reduction in core inflation. The policy implication is that price liberalisation in advance of financial liberalization and structural reform, including widespread privatisation of the production process, necessarily results in some temporary loss of output.
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Suggested Citation

  • Papazoglou, Christos & Pentecost, Eric J., 2004. "The dynamic adjustment of a transition economy in the early stages of transformation," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 547-561, September.
    • Handle: RePEc:eee:jmacro:v:26:y:2004:i:3:p:547-561
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    References listed on IDEAS

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    1. Paul Mizen & Eric J. Pentecost (ed.), 1996. "The Macroeconomics of International Currencies," Books, Edward Elgar Publishing, number 904.
    2. 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.
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    5. Uribe, Martin, 1997. "Hysteresis in a simple model of currency substitution," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 185-202, September.
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    7. Ashok Kumar Lahiri, 1991. "Money and Inflation in Yugoslavia," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 751-788, December.
    8. Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-625, June.
    9. László Halpern & Charles Wyplosz, 1997. "Equilibrium Exchange Rates in Transition Economies," IMF Staff Papers, Palgrave Macmillan, vol. 44(4), pages 430-461, December.
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    Cited by:

    1. Salah A. Nusair, 2017. "The J-Curve phenomenon in European transition economies: A nonlinear ARDL approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(1), pages 1-27, January.
    2. George Hondroyiannis & Sophia Lazaretou, 2007. "Inflation persistence during periods of structural change: an assessment using Greek data," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(5), pages 453-475, December.
    3. Huang, Jianbai & Tang, Jing & Zhang, Hongwei, 2020. "The effect of investors’ information search behaviors on rebar market return dynamics using high frequency data," Resources Policy, Elsevier, vol. 66(C).
    4. George A. Christodoulakis & Stephen E Satchell, 2006. "Exact Elliptical Distributions for Models of Conditionally Random Financial Volatility," Working Papers 32, Bank of Greece.
    5. Christos Papazoglou, 2005. "Real Exchange Rate Dynamics and Output Contraction under Transition," Working Papers 29, Bank of Greece.
    6. Sideris, Dimitrios, 2006. "Testing for long-run PPP in a system context: Evidence for the US, Germany and Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 143-154, April.
    7. Salah A Nusair, 2017. "On the Nominal and Real Currency Devaluation Nexus in European Transition Economies," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(4), pages 677-698, September.
    8. Moore, Tomoe & Pentecost, Eric J., 2006. "An investigation into the sources of fluctuation in real and nominal wage rates in eight EU countries: A structural VAR approach," Journal of Comparative Economics, Elsevier, vol. 34(2), pages 357-376, June.
    9. Granville, Brigitte & Mallick, Sushanta, 2010. "Monetary Policy in Russia: Identifying exchange rate shocks," Economic Modelling, Elsevier, vol. 27(1), pages 432-444, January.
    10. Nicholas G. Zonzilos, 2004. "Econometric Modelling at the Bank of Greece," Working Papers 14, Bank of Greece.
    11. Eleni Angelopoulou, 2005. "The Comparative Performance of Q-type and Dynamic Models of Firm Investment: Empirical Evidence from the UK," Working Papers 27, Bank of Greece.
    12. Granville, Brigitte & Mallick, Sushanta, 2006. "Does inflation or currency depreciation drive monetary policy in Russia?," Research in International Business and Finance, Elsevier, vol. 20(2), pages 163-179, June.

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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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