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Stabilization and Growth in Transition Economies: The Early Experience

  • Stanley Fischer
  • Carlos A. Végh Gramont
  • Ratna Sahay

This paper analyzes the growth and stabilization experience in 26 transition economies in eastern Europe, the former Soviet Union, and Mongolia for the period 1989-1994. Inflation rates have declined significantly in most countries following an inflation stabilization program. Growth resumes after stabilization occurs, typically with a lag of about two years. Reducing inflation thus appears to be a precondition for growth. An econometric analysis of the short-run determinants of inflation and growth illustrates the key roles of fixed exchange rates, improved fiscal balances, and structural reforms in spurring growth and lowering inflation, and confirms that inflation stabilization programs have been beneficial for growth even after controlling for structural reforms.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 96/31.

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Length: 32
Date of creation: 01 Apr 1996
Date of revision:
Handle: RePEc:imf:imfwpa:96/31
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  1. Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 125-188 National Bureau of Economic Research, Inc.
  2. Kornai, J., 1993. "Transformational Recession; A General Phenomenon Examined Through the Example of Hangary's Development," Harvard Institute of Economic Research Working Papers 1648, Harvard - Institute of Economic Research.
  3. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters, in: Inflation: Causes and Effects, pages 41-98 National Bureau of Economic Research, Inc.
  4. Blanchard, Olivier Jean & Aghion, Philippe, 1994. "On the Speed of Transition in Central Europe," Scholarly Articles 4481322, Harvard University Department of Economics.
  5. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  6. Sachs, J.D. & Woo, W.T., 1994. "Structural Factors in the Economic Reforms of China, Eastern Europe and the Former Soviet Union," Papers 94-01, California Davis - Institute of Governmental Affairs.
  7. Carlos A. Végh, 1992. "Stopping High Inflation: An Analytical Overview," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 626-695, September.
  8. Alan Gelb & Gary Jefferson & Inderjit Singh, 1993. "Can communist economies transform incrementally? The experience of China," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(4), pages 401-435, December.
  9. Yavlinsky Grigory & Braguinsky Serguey, 1994. "The Inefficiency of Laissez-Faire in Russia: Hysteresis Effects and the Need for Policy-Led Transformation," Journal of Comparative Economics, Elsevier, vol. 19(1), pages 88-116, August.
  10. Stanley Fischer, 1994. "Russia and the Soviet Union Then and Now," NBER Chapters, in: The Transition in Eastern Europe, Volume 1, pages 221-258 National Bureau of Economic Research, Inc.
  11. Alan Gelb & Gary Jefferson & Inderjit Singh, 1993. "Can Communist Economies Transform Incrementally? The Experience of China," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 87-150 National Bureau of Economic Research, Inc.
  12. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  13. de Melo, Martha & Denizer, Cevdet & Gelb, Alan, 1996. "From plan to market : patterns of transition," Policy Research Working Paper Series 1564, The World Bank.
  14. Micael Castanheira De Moura & Gérard Roland, 2000. "The optimal speed of transition: a general equilibrium analysis," ULB Institutional Repository 2013/10011, ULB -- Universite Libre de Bruxelles.
  15. Mario I. Blejer & Fabrizio Coricelli, 1995. "The Making Of Economic Reform In Eastern Europe," Books, Edward Elgar, number 72, April.
  16. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
  17. Kent Osband, 1991. "Index Number Biases During Price Liberalization," IMF Working Papers 91/76, International Monetary Fund.
  18. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
  19. Stanley Fischer & Alan Gelb, 1991. "The Process of Socialist Economic Transformation," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 91-105, Fall.
  20. Cohen, Daniel, 1995. "The Transition in Russia: Successes (Privatization, Low Unemployment...) and Failures (Mafias, Liquidity Constraints...). A Theoretical Analysis," CEPR Discussion Papers 1224, C.E.P.R. Discussion Papers.
  21. Ratna Sahay & Carlos A. Vegh, 1996. "Inflation and stabilization in transition economies: An analytical interpretation of the evidence," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(1), pages 75-108.
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