Pensions, Price Shocks, and Macroeconomic Stability in Transition Economies: Illustrations From Belarus
IMF Working Papers, May 1, 1994
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Bibliographic details
- Authors: Sergio Lugaresi, Ehtisham Ahmad, Jean-Luc Schneider, Alex Mourmouras
- Published: May 1, 1994
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451847185.001
Overview and Purpose
- Authors: Sergio Lugaresi, Ehtisham Ahmad, Jean-Luc Schneider, Alex Mourmouras
- Publication date: May 1, 1994
- Series: Working Paper No. 1994/052
- Issue: 052
- Volume: 1994
- Pages: 30
- DOI: https://doi.org/10.5089/9781451847185.001
- ISBN: 9781451847185
- ISSN: 1018-5941
- Objective: To analyze effects of pension revaluation and indexation arrangements—particularly lagged indexation—on macroeconomic stability in transition economies, with illustrative examples from Belarus.
Key Findings
- Pensioners are a large and vulnerable population group in many countries of the former Soviet Union, with pensions fixed in nominal terms.
- Policy attempts to protect pensioners have included:
- Revaluation of benefits for retirees.
- Introduction of indexation arrangements based on recent wage and price growth.
- Lagged indexation arrangements are shown to have large destabilizing effects that can potentially jeopardize the macroeconomic adjustment effort, particularly as inflation begins to decelerate.
- The paper discusses some long-term problems relating to the aging of the population and associated policies.
Mechanisms and Dynamics Highlighted
- Indexation based on recent wage and price growth with lags can amplify instability rather than stabilize real incomes when inflation is changing.
- As inflation decelerates, lagged adjustments can lead to excessive real wage/pension growth that undermines macroeconomic adjustment.
Illustrative Evidence
- Illustrative examples from Belarus are presented to demonstrate the destabilizing potential of lagged pension indexation arrangements in a transition economy context.
Policy Implications and Recommendations
- Revaluation and indexation mechanisms need careful design to avoid destabilizing macroeconomic effects.
- Consideration of timing and reference bases for indexation is crucial, especially during periods of disinflation.
- Long-term demographic trends (aging populations) require policies that account for sustainability of pension spending and macroeconomic stability.
Subjects and Keywords
- Subjects: Aging, Expenditure, Inflation, Labor, Pension spending, Pensions, Population and demographics, Prices, Wages
- Keywords: Aging, Eastern Europe, flat rate, Inflation, Pension spending, Pensions, reference wage, wage, wage bill, wage growth, wage inflation, wage revaluation, Wages, WP
Source: IMF Working Papers, "Pensions, Price Shocks, and Macroeconomic Stability in Transition Economies: Illustrations From Belarus", May 1, 1994.