IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/2288.html
   My bibliography  Save this paper

Ten years of transformation - macroeconomic lessons

Author

Listed:
  • Wyplosz, Charles

Abstract

After surveying the facts and distilling the voluminous literature on the transition to market economies, the author arrives at several conclusions: with hindsight, the old debate - Big Bang versus gradualism - was really a problem of feasibility, although many of the arguments in favor of the Big Bang have now been proven right. Once more, inflation has been found to be incompatible with growth and the importance of a good microeconomic structure - especially an effective banking system - has been confirmed. The decline of the state in transition economies is both spectacular and puzzling - combining features that are both desirable and dangerous. Among useful lessons learned: 1) It has paid to start early and move fast. The Big Bang is highly desirable but impractical, and gradualism is unavoidable but ought to be compressed as much as possible. The countries that bit the bullet early and hard have done better over the past decade. 2) Stabilize first; growth next. Macroeconomic stabilization is a prerequisite for growth. The budget deficit need not be eliminated, but the link between deficits and money growth must be severed. 3) Structural reform is important, and microeconomic policies, often overlooked, should be started as soon as possible. This means establishing property rights, hardening budget constraints, building a healthy banking system, and ensuring true domestic competition. 4) The choice of an exchange rate regime, another early controversy, is apparently less important than adherence to a strictmonetary policy. The floaters have tightly managed their exchange rates, while the fixers have repeatedly devalued and have often ended up floating. Some form of monetary targeting is needed, but it matters little which target is chosen so long as it is adhered to. 5) Creating irreversibilities early on allows governments to change without seriously affecting the transition. The less stable the economy, the more politics matters. A shaky economic basis is fertile ground for policy reversals that set the clock back several years (Bulgaria, Romania, Russia).

Suggested Citation

  • Wyplosz, Charles, 2000. "Ten years of transformation - macroeconomic lessons," Policy Research Working Paper Series 2288, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2288
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2000/03/21/000094946_00022905315530/Rendered/PDF/multi_page.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Grafe, Clemens & Wyplosz, Charles, 1997. "The Real Exchange Rate in Transition Economies," CEPR Discussion Papers 1773, C.E.P.R. Discussion Papers.
    2. László Halpern & Charles Wyplosz, 1997. "Equilibrium Exchange Rates in Transition Economies," IMF Staff Papers, Palgrave Macmillan, vol. 44(4), pages 430-461, December.
    3. Philippe Aghion & Olivier J. Blanchard, 1994. "On the Speed of Transition in Central Europe," NBER Chapters,in: NBER Macroeconomics Annual 1994, Volume 9, pages 283-330 National Bureau of Economic Research, Inc.
    4. Corbett, Jenny & Mayer, Colin, 1991. "Financial Reform in Eastern Europe: Progress with the Wrong Model," Oxford Review of Economic Policy, Oxford University Press, vol. 7(4), pages 57-75, Winter.
    5. Francesco Giavazzi & Marco Pagano, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," NBER Working Papers 5332, National Bureau of Economic Research, Inc.
    6. S. Fisher & R. Sahay & C. A. Vegh, 1997. "Stabilization and Growth in Transition Economies: The Early Experience," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
    7. David Begg & Richard Portes, 1993. "Enterprise debt and economic transformation (Financial restructuring of the state sector in Central and Eastern Europe)," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(1), pages 116-117, January.
    8. Carlin, Wendy & Mayer, Colin, 1992. "Restructuring Enterprises in Eastern Europe," CEPR Discussion Papers 700, C.E.P.R. Discussion Papers.
    9. Kornélia Krajnyák & Jeromin Zettelmeyer, 1998. "Competitiveness in Transition Economies: What Scope for Real Appreciation?," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 309-362, June.
    10. Dewatripont, M & Roland, G, 1992. "The Virtues of Gradualism and Legitimacy in the Transition to a Market Economy," Economic Journal, Royal Economic Society, vol. 102(411), pages 291-300, March.
    11. Abel, István & Bonin, John, 1992. "The `Big Bang' Versus `Slow but Steady': A Comparison of the Hungarian and the Polish Transformations," CEPR Discussion Papers 626, C.E.P.R. Discussion Papers.
    12. Selowsky, Marcelo & Martin, Ricardo, 1997. "Policy Performance and Output Growth in the Transition Economies," American Economic Review, American Economic Association, vol. 87(2), pages 349-353, May.
    13. Gerard Caprio, Jr., 1995. "The role of financial intermediaries in transitional economies," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 257-302, June.
    14. Gérard Bélanger, 1994. "Eastern Europe; Factors Underlying the Weakening Performance of Tax Revenues," IMF Working Papers 94/104, International Monetary Fund.
    15. Ardagna, Silvia & Alesina, Alberto, 1998. "Tales of Fiscal Adjustment," Scholarly Articles 2579822, Harvard University Department of Economics.
    16. Pleskovic, Boris, 1994. "Financial policies in socialist countries in transition," Policy Research Working Paper Series 1242, The World Bank.
    17. Alberto Alesina & Silvia Ardagna, 1998. "Tales of fiscal adjustment," Economic Policy, CEPR;CES;MSH, vol. 13(27), pages 487-545, October.
    18. Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
    19. Anders Åslund & Peter Boone & Simon Johnson, 1996. "How to Stabilize: Lessons from Post-communist Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 217-314.
    20. Saunders, Anthony & Sommariva, Andrea, 1993. "Banking sector and restructuring in Eastern Europe," Journal of Banking & Finance, Elsevier, vol. 17(5), pages 931-957, September.
    21. Fischer, Stanley & Sahay, Ratna & Vegh, Carlos A, 1996. "Economies in Transition: The Beginnings of Growth," American Economic Review, American Economic Association, vol. 86(2), pages 229-233, May.
    22. Portes, Richard, 1994. "Transformation Traps," Economic Journal, Royal Economic Society, vol. 104(426), pages 1178-1189, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Max Gillman & Anton Nakov, 2004. "Granger causality of the inflation-growth mirror in accession countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(4), pages 653-681, December.
    2. Alex Segura-Ubiergo & Alejandro Simone & Sanjeev Gupta & Qiang Cui, 2010. "New Evidence on Fiscal Adjustment and Growth in Transition Economies," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 52(1), pages 18-37, March.
    3. Gilles DUFRENOT & Alain SAND, "undated". "Structural Reforms, Macroeconomic Policies and the Future of Kazakhstan Economy," EcoMod2004 330600046, EcoMod.
    4. Alain Sand, 2005. "Structural reforms, macroeconomic policies and the future of Kazakhstan," Working Papers 0411, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    5. Sandor Valkovszky & Janos Vincze, 2001. "Estimates of and Problems with Core Inflation in Hungary," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 1(1), pages 69-99.
    6. Robert B.K. Pye, 2000. "The Evolution of the Insurance Sector in Central and Eastern Europe and the Former Soviet Union," William Davidson Institute Working Papers Series 336, William Davidson Institute at the University of Michigan.
    7. Altar, Moisa & Albu, Lucian Liviu & Dumitru, Ionut & Necula, Ciprian, 2009. "Estimation of Equilibrium Real Exchange Rate and of Deviations for Romania," Working Papers of National Institute of Economic Research 090105, National Institute of Economic Research.
    8. Robert Pye, 2005. "The Evolution of Financial Services in Transition Economies: An Overview of the Insurance Sector," Post-Communist Economies, Taylor & Francis Journals, vol. 17(2), pages 205-223.
    9. Andrea Brasili & Bruno Sitzia, 2003. "Risk Related Non Linearities in Exchange Rates: Evidence from a Panel of Central and Eastern European Countries," Open Economies Review, Springer, vol. 14(2), pages 135-155, April.
    10. Maria Piotrowska, 2001. "Macroeconomic shocks across Central European Countries," ERSA conference papers ersa01p147, European Regional Science Association.
    11. Facchini, Giovanni & Segnana, Maria Luigia, 2003. "Growth at the EU periphery: the next enlargement," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(5), pages 827-862.
    12. Topalli, Margerita & Ivanaj, Silvester, 2016. "Mapping the evolution of the impact of economic transition on Central and Eastern European enterprises: A co-word analysis," Journal of World Business, Elsevier, vol. 51(5), pages 744-759.
    13. Ichiro Iwasaki, 2004. "Evolution of the Government–Business Relationship and Economic Performance in the Former Soviet States – Order State, Rescue State, Punish State," Economic Change and Restructuring, Springer, vol. 36(3), pages 223-257, September.
    14. Barlow, David, 2010. "How did structural reform influence inflation in transition economies?," Economic Systems, Elsevier, vol. 34(2), pages 198-210, June.
    15. Neven Valev & John A. Carlson, 2002. "Tenuous Financial Stability," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0210, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

    More about this item

    Keywords

    Economic Theory&Research; Payment Systems&Infrastructure; Environmental Economics&Policies; Banks&Banking Reform; Fiscal&Monetary Policy; Economic Theory&Research; Environmental Economics&Policies; Banks&Banking Reform; Economic Stabilization; Macroeconomic Management;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2288. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.