IMF Working Papers

A Simple Monetary Model of a Shortage Economy

By Shoukang Lin

August 1, 1992

Preview Citation

Format: Chicago

Shoukang Lin. A Simple Monetary Model of a Shortage Economy, (USA: International Monetary Fund, 1992) accessed September 20, 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

During the transition from a centrally planned economy to a market economy, many countries seem to have experienced some degree of macroeconomic instability. This paper attempts to provide a theoretical explanation of this phenomenon. The paper develops a simple monetary model and shows how macroeconomic stability can be achieved in a rigid centrally planned economy, despite the inherent structural imbalances and irrational price system. On the other hand, the study shows that without hardening enterprise budget constraints, wage and price decontrol tends to destablize the economy and may lead to persistent budget deficits and inflation. The paper also provides a rigorous analysis of household savings and money demand in a shortage economy, and clarifies the somewhat confusing concept of “monetary overhang” in the literature.

Subject: Budget planning and preparation, Economic sectors, Income, Informal economy, Labor, Monetary base, Money, National accounts, Public financial management (PFM), Wages

Keywords: Budget deficit, Budget planning and preparation, Enterprise profits, Income, Informal economy, Loss-making firm, Monetary base, Money supply, Planned economy, Price liberalization, Type x firm, Wages, WP

Publication Details

  • Pages:

    30

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1992/069

  • Stock No:

    WPIEA0691992

  • ISBN:

    9781451960662

  • ISSN:

    1018-5941

Notes

Also published in Staff Papers, Vol. 40, No. 2, June 1993.

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