An Empirical Analysis of the Output Declines in Three Eastern European Countries

The declines in economic activity experienced by Bulgaria, the Czech and Slovak Federal Republic, and Romania in the period since market-oriented reforms were initiated are analyzed. After reviewing developments in these three countries, the paper empirically investigates two questions that are central to an interpretation of the output decline. First, to what extent does the output fall reflect "structural change," or a reallocation of resources across sectors, rather than a conventional macroeconomic recession? Second, to what extent have demand-side or supply-side forces been dominant in generating the output decline?

Inflation and stabilization in transition economies: An analytical interpretation of the evidence

A simple model is developed to understand inflationary pressures and stabilization in non-market economies. It is shown that in the typical planned economy, the endogeneity of the money supply and the over-determination of the system (given that both prices and wages are set by the planners) imply that a permanent increase in wages leads to an ever-increasing monetary overhang. The model also suggests that price liberalization should lead to a price level overshooting provided that wages remain a nominal anchor. In light of the model, the paper reviews the inflation and stabilization experiences of several transition economies in Eastern Europe and the former Soviet Union. The paper concludes that (i) transition economies have suffered from essentially the same inflationary pressures as did planned economies, and (ii) the exchange rate has been more effective than money as a nominal anchor in reducing inflationinflation, stabilization, transition economies,

Government Size and Unemployment: Evidence from Industrial Countries

Using data from 19 industrial countries for the period 1985 to 2002, this paper analyzes how the size of the government sector affects unemployment. Controlling for the impact of the business cycle as well as for the impact of all major labor market institutions and unobserved country effects, we find that a large government sector is likely to increase unemployment. It appears to have a particularly detrimental effect on women and the low skilled and to substantially increase long-term unemployment. It seems that dominant stateowned enterprises, a large share of public investment in total investment as well as high top marginal income tax rates and low income threshold levels at which they apply are particularly detrimental. Copyright Springer Science+Business Media, Inc. 2006