The Path of Output From Plan to Market

Author/Editor:

Thorvaldur Gylfason

Publication Date:

June 1, 1994

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 is intended to clarify the contribution of macroeconomic stabilization and structural adjustment to the transformation from plan to market in Central and Eastern Europe and elsewhere. Four main points emerge. First, increased price stability improves the utilization of capital and thus increases the level of output at full employment in the long run, even though output decreases initially. Second, the static output gain from stabilization is captured in a simple formula in which the gain is approximately proportional to the square of the original inflation distortion. Third, successful stabilization increases the rate of growth of output per head, and not only its level, in the presence of constant returns to capital in a broad sense. Fourth, substitution of plausible parameter estimates into the simple formulae reflecting the gains from stabilization indicate that the static and dynamic output gains can be quite large.

Series:

Working Paper No. 94/71

Subject:

English

Publication Date:

June 1, 1994

ISBN/ISSN:

9781451959888/1018-5941

Stock No:

WPIEA0711994

Format:

Paper

Pages:

45

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