Stabilization and Growth in Transition Economies: The Early Experience

IMF Working Papers, April 1, 1996

Source details

Canonical URL: Stabilization and Growth in Transition Economies: The Early Experience

Analysis covers 26 transition economies in eastern Europe, the former Soviet Union, and Mongolia for the period 1989-1994.
Working Paper details:
- Authors: Stanley Fischer, Carlos A. Végh Gramont, Ratna Sahay
- Date: April 1, 1996
- Pages: 32
- Series: Working Paper No. 1996/031
- Issue: 031
- Volume: 1996
- DOI: https://doi.org/10.5089/9781451980042.001
- Stock No: WPIEA0311996
- ISBN: 9781451980042
- ISSN: 1018-5941

Inflation outcomes:
- Inflation rates have declined significantly in most countries following an inflation stabilization program.
Growth dynamics:
- Growth resumes after stabilization occurs, typically with a lag of about two years.
- Reducing inflation thus appears to be a precondition for growth.
Econometric results on short-run determinants of inflation and growth:
- Fixed exchange rates play a key role in lowering inflation and spurring growth.
- Improved fiscal balances contribute to both lower inflation and higher growth.
- Structural reforms are important for spurring growth and lowering inflation.
- Inflation stabilization programs have been beneficial for growth even after controlling for structural reforms.

Prioritize credible inflation stabilization programs as a necessary step toward restoring growth.
Consider exchange rate arrangements (including fixed exchange rates) as part of a stabilization strategy to reduce inflation.
Strengthen fiscal positions to support disinflation and subsequent growth.
Implement structural reforms alongside stabilization policies to enhance growth prospects.
Design stabilization packages that combine fiscal consolidation, exchange rate policy, and structural reform to maximize the likelihood of growth resumption.

Source: Stabilization and Growth in Transition Economies: The Early Experience, IMF Working Paper No. 1996/031 (April 1, 1996).