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The Path of Output From Plan to Market

Author

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  • Thorvaldur Gylfason

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 original 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 quite large.

Suggested Citation

  • Thorvaldur Gylfason, 1994. "The Path of Output From Plan to Market," IMF Working Papers 94/71, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:94/71
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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

    Keywords

    Eastern Europe; Economic growth; Inflation; Savings; Production; Price stabilization; Stabilization programs; aggregate demand; monetary fund; relative prices; rate of inflation;

    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 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform

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