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

February 1, 1991

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Jacob A. Frenkel, and Guillermo Calvo. From Centrally-Planned to Market Economies: The Road from CPE to PCPE, (USA: International Monetary Fund, 1991) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Credit, Currencies, Exchange rates, Foreign exchange, Money, Real exchange rates

Keywords: Credit, Credit crunch, Currencies, Eastern Europe, Economic system, Exchange rates, Foreign currency, Goods market, Liberalization plan, Nominal exchange rate, Nontradable goods, Price reform, Price rise, Rate of interest, Real exchange rates, Reform result, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1991/017
Stock No:

WPIEA0171991
ISBN:

9781451843446
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 38, No. 2, June 1991.

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