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Should price reform proceed gradually or in a"big bang?"

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  • van Wijnbergen, Sweder

Abstract

Should countries such as Poland or the USSR move toward more flexible prices gradually or in a"big bang?"Why is it that governments committed to eventual price flexibility so often seem to be unable to let go of"temporary"controls? Why, after price increases early in a program of price controls, does output often rise at the same time that shortages seem to increase? Theauthor argues that intertemporal speculation, hoarding, and the political economy of price control help explain these puzzles. The interaction between shortages and the political vulnerability of reformist governments to early perceptions of failure is a strong argument against gradualism in the decontrol of prices.

Suggested Citation

  • van Wijnbergen, Sweder, 1991. "Should price reform proceed gradually or in a"big bang?"," Policy Research Working Paper Series 702, The World Bank.
    • Handle: RePEc:wbk:wbrwps:702
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    References listed on IDEAS

    as
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    6. Persson, Torsten & van Wijnbergen, Sweder, 1993. "Signalling, Wage Controls and Monetary Disinflation Policy," Economic Journal, Royal Economic Society, vol. 103(416), pages 79-97, January.
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    8. Rudiger Dornbusch, 1988. "Notes on Credibility and Stabilization," NBER Working Papers 2790, National Bureau of Economic Research, Inc.
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