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From Centrally-Planned to Market Economies; The Road from CPE to PCPE

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  • 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.

Suggested Citation

  • Jacob A. Frenkel & Guillermo Calvo, 1991. "From Centrally-Planned to Market Economies; The Road from CPE to PCPE," IMF Working Papers 91/17, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:91/17
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    References listed on IDEAS

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    1. 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.
    2. Fischer, Stanley & Gelb, Alan, 1990. "Issues in socialist economy reform," Policy Research Working Paper Series 565, The World Bank.
    3. Jacob A. Frenkel & Carlos A. Rodriguez, 1982. "Exchange Rate Dynamics and the Overshooting Hypothesis," NBER Working Papers 0832, National Bureau of Economic Research, Inc.
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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. 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.
    3. Truong Dhd. & Gates, C. L., 1992. "Effects of government policies on the incentive to invest, enterprise behaviour and employment: the case study of Vietnam," ILO Working Papers 992878513402676, International Labour Organization.
    4. 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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