Output decline in Hungary and Poland in 1990-91 : structural change and aggregate shocks

The authors try to distinguish between general and national features in explaining the impulse, transmission channels, and path of output decline in Hungary and Poland. It is clear that output losses are massively concentrated in the socialized industrial sectors, but they identify significant differences in the distribution of those losses and their associated employment outcomes; in the timing and degree of synchronization of those losses; and in the two countries'different policy responses to these powerful recessionary pressures. In particular, they try to separate shocks particular to a sudden (Polish) big bang and those attributable to a more gradual path of reform (Hungary). The contrast between Hungary and Poland is less robust than initial impressions led one to expect. By 1991, both economies have open trade regimes, and a practically fully liberalized price system. The magnitude of shocks to both economies and the accompanying macroeconomic policies clearly diverged. The role of macroeconomic policies was easier to isolate in 1990, before the full effects of the CMEA shock could be felt. Interestingly, in 1990, the decline in output was far smaller in Hungary than in Poland, and was of rather a different nature. In 1990, employment declined more rapidly than output in Hungary, but lagged sharply behind output in Poland. So productivity increased, albeit marginally, in Hungary, while declining sharply in Poland. Contrary to expectations, the Polish big bang approach has produced less adjustment than the more gradual approach followed by Hungary. One reason for this could be the lack of progress on microeconomic reforms that have accompanied the drastic shift in macroeconomic policies. But the authors suggest that this result could also be associated with the two different paths to reform, the big bang and gradualism.Environmental Economics&Policies,Economic Theory&Research,Fiscal&Monetary Policy,Banks&Banking Reform,Access to Markets

Growth and crisis in transition : a comparative perspective

The paper provides an empirical analysis of the growth performance of transition countries in a comparative perspective, separating episodes of crises from those of growth. Performance is measured by the output response following recessions, rather than average rates of growth that aggregate periods of recessions and periods of growth. Results highlight significant differences between transition and non-transition countries, and heterogeneity within the transition group. Distinguishing the performance following the so-called "transitional recession" from that of "normal recessions", the analysis allows separating the role of initial conditions, pre-transition, from the effects determined by the economic structure that emerged after the launch of market reforms. The post-recession behavior of output in Central-Eastern Europe resembles that of emerging and developing countries in the aftermath of banking and financial crises, often following significant liberalizations. In contrast, the post-crisis performance of CIS countries resembles the output response observed during episodes of civil wars, and remains significantly different from the normal response of an average market country. Therefore, the ability to rebound after a crisis is a key element of the growth performance of different transition countries. Furthermore, we distinguish three components of the growth performance associated to a crisis, namely the capacity to rebound, the depth and the lenght of the crisis. We observe that such performance depends on economic reforms and especially on the complementarities among different reforms.Recessions, crises, reform complementarities, transition.

Wages and unemployment in Poland : recent developments and policy issues

The authors review recent developments in wages, employment, and unemployment in Poland and discuss some of the main risks Poland faces in sustaining its stabilization effort. They find that: unemployment has increased dramatically with stabilization, but this increase cannot be said to reflect widespread economic adjustment and restructuring throughout the Polish economy; and wages showed a significant degree of downward flexibility - in real terms - at the beginning of the year, when firms faced a severe supply shock coupled with very tight credit. The wage policy still in force in Poland at the end of 1991 maintains a few undesirable features. The monthly indexation and the possibility of carrying forward the unused margins are among the policy's main drawbacks; another is the link between wages and profitability. The current wage policy could be replaced by a generalized agreement on the wage path, with synchronized six-month contracts. The wage path should be related to expected inflation and economywide productivity. This scheme would also have the advantage of being based on a consensual agreement instead of being perceived as being imposed as a punitive tax.Youth and Governance,Banks&Banking Reform,Economic Theory&Research,Health Monitoring&Evaluation,Environmental Economics&Policies

PRICE SETTING AND MARKET STRUCTURE: AN EMPIRICAL ANALYSIS OF MICRO DATA

Most empirical studies on price setting that use micro data focus on advanced industrial countries. In this paper we analyze the experience of an emerging economy, Slovakia, using a large micro-level dataset that accounts for a substantial part of the consumer price index (about 5 million observations). We find that market structure is an important determinant of pricing behavior. The effect of market structure on persistence of inflation results from two conflicting forces. Increased competition may reduce persistence by increasing the frequency of price changes. In contrast, higher competition may increase persistence through inertial behaviour induced by the strategic complementarity among price setters. In our case study, we find that the latter effects dominate. Indeed, the dispersion of prices is higher while persistence is lower in the non-tradable sectors, suggesting that higher competition is not conducive to lower persistence. Furthermore, we find that the frequency of price changes depends negatively on the price dispersion and positively on the product-specific inflation. These results seem consistent with predictions of Calvo’s staggered price model.price setting, market structure, emerging markets

Price - wage dynamics and the transmission of inflation in socialist economies : empirical models for Hungary and Poland

The authors of this paper set up a simple inflation model to analyze the transmission and short-run dynamics of inflation in partially reformed socialist economies. The model has features derived from market economies with few producers and sticky prices. It also tries to capture some attributes of socialist economies, including chronic excess demand in goods markets. Most of the empirical analysis focuses on the period after 1982 when market-related reforms had been implemented. The dynamic price and wage models are simultaneously estimated allowing the authors to explore the role and weight of foreign prices and domestic factors in propagating inflation in Hungary and Poland. They find that cost developments are critical in relating exogenous, policy-determined price adjustments to increases in inflation. In most periods, wages were indexed to prices - but in Poland more complex bargaining games emerged which caused an inability to make centralized wage norms hold. Polish planners relied increasingly on price adjustments to address emerging macroeconomic imbalances, but these only further destabilized the system and failed to address the underlying sources of macroeconomic imbalances. In contrast, the Hungarian experience points to some of the ways administered prices can be used to stabilize the system.Access to Markets,Markets and Market Access,Economic Theory&Research,Environmental Economics&Policies,Settlement of Investment Disputes

Growth in Transition: What We Know, What We Don't, and What We Should

This essay surveys macroeconomic issues that marked the transition from centrally planned to market economy in Central and Eastern European and former Soviet Union countries. We first establish a set of stylized facts of the transition so far, namely: (1) output fell, (2) capital shrank, (3) labor moved, (4) trade reoriented, (5) the structure changed, (6) institutions collapsed, and (7) transition costs. We then critically survey the theoretical literature on transition, discussing various explanations for the initial output fall as well as medium term issues, such as optimal speed of transition, disorganization, institutions and sectoral reallocation as a source of output dynamics. Last, we review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts. The essay concludes with a succinct list of suggestions for future research.http://deepblue.lib.umich.edu/bitstream/2027.42/39854/3/wp470.pd

The macroeconomics of price reform in socialist countries : a dynamic framework

This paper emphasizes the fiscal underpinnings of the inflationary process and those particular dynamics when a dual price system is present. In particular, it explores the links between price controls and decontrols and the government budget, mainly through the flow of subsidies to either consumers or producers. A clear conclusion is that without consistency in macroeconomic policy, price liberalization may simply exacerbate imbalances and ultimately provide a mechanism for sustaining inflation, hencecompromising a basic objective of macroeconomic policy.Access to Markets,Economic Theory&Research,Environmental Economics&Policies,Insurance&Risk Mitigation,Markets and Market Access

Growth in Transition: What We Know, What We Don't, and What We Should

This essay surveys macroeconomic issues that marked the transition from centrally planned to market economy in Central and Eastern European and former Soviet Union countries. We first establish a set of stylized facts of the transition so far, namely: (1) output fell, (2) capital shrank, (3) labor moved, (4) trade reoriented, (5) the structure changed, (6) institutions collapsed, and (7) transition costs. We then critically survey the theoretical literature on transition, discussing various explanations for the initial output fall as well as medium term issues, such as optimal speed of transition, disorganization, institutions and sectoral reallocation as a source of output dynamics. Last, we review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts. The essay concludes with a succinct list of suggestions for future research.Economic Growth, Transition Economies

Monetary Transmission Mechanism in Central & Eastern Europe: Gliding on a Wind of Change

This paper surveys recent advances in empirical studies of the monetary transmission mechanism (MTM), with special attention to Central and Eastern Europe. In particular, while laying out the functioning of the separate channels in the MTM, it explores possible interrelations between different channels and their impact on prices and the real economy. The empirical findings for Central and Eastern Europe are then briefly compared with results for industrialized countries, especially for the euro area. We highlight potential pitfalls in the literature and assess the relative importance, and potential development, of the different channels, emphasizing the relevant asymmetries between Central and Eastern European countries and the euro area.http://deepblue.lib.umich.edu/bitstream/2027.42/57230/1/wp850 .pd

Financial Liberalization and Democracy: The Role of Reform Reversals

The relationship between economic and political liberalization has received a great deal of attention lately, yet the possibility of a nonlinear relationship and the role of reversals remain largely neglected. Focusing on democratization and financial reform, this paper offers evidence for a U-shaped relationship across countries, over time as well as in a panel setting using a wide range of estimators for various reform measures. We link this non-linear relationship to the notion of partial or captured democracy. We provide as well econometric support showing that even when de facto is modelled as a function of de jure financial liberalization, this non-linearity obtains.reform reversals, political liberalization, economic liberalization, financial reform