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Transition in Eastern Europe: Current Issues and Perspectives

Beihefte der Konjunkturpolitik, Vol. 45

(1997)

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Abstract

This publication contains a selection of papers presented at a conference discussing fundamental issues in the economics of transition, aspects of liberalization/privatization/stabilization and the experience of selected countries. The sessions lead to a number of hypotheses:

- There is a need to analyze historical and economic aspects of phases of relative success of the socialist system of central planning

- Next to the important role of distribution of personal incomes and wealth for the success of the transformation process, the question of "optimal change of personal income and wealth distribution" during the process of transformation has to be raised.

- In assessing the costs and benefits of reform policies, any methodological approach should take into account an intertemporal perspective

- How much does the EU continue protectionism against countries which will not become its members in the near future?

- The role of the institutional environment shall not be neglected when analyzing the process of transition: financial markets e. g. are of great relevance for sound development.

- An early status of independence for the central bank from public finance obligations appears to help to eliminate the monetary overhang.

- A quick, almost instant liberalization strategy (countries of Central and Eastern Europe) seems to be more successful than gradual liberalization (Russia, Ukraine, Belarus) along with interventionism of trade policy.

Table of Contents

Section Title Page Action Price
Inhalt 5
Bernd Huber / Friedrich L. Sell: Introduction 7
Ulrich Blum: Greed and Grief in East Germany - the Socialist System's Crisis, Collapse and Transformation 11
1. The rise and the decline of the CPE 11
2. Scientific coverage and alternative paradigms 12
2.1 Stylized facts 12
2.2 Old institutional economics 15
2.3 Functionalist economics 17
2.4 New institutional economics 18
2.5 Structuralist economics 19
2.6 Synthesis 20
3. Games among supervisors 20
3.1 The principal-agent background 20
3.2 Description of the model 22
3.3 Structure of the model 23
3.3.1 Summary of outcomes 23
3.3.2 The chicken game 24
3.3.3 The social optimum 25
3.3.4 The prisoners' dilemma 25
3.4 Declining reward and economic decay 26
4. Conclusion 28
Abstract 29
References 30
Henning Klodt: Comment on: Ulrich Blum, Greed and Grief in East Germany - the Socialist System's Crisis, Collapse and Transformation 35
References 37
Klaus-Dieter Schmidt: Transition in Eastern Europe: The Integration of Goods and Factor Markets into the World Economy 39
1. Introduction: economic opening-up, trade reorientation and industrial restructuring 39
2. Theoretical background: routes towards integration 41
2.1 Shallow versus deep integration 41
2.2 Economic versus political integration 42
3. Stylized facts: patterns of economic integration 43
3.1 Comparative advantages and trade reorientation 44
3.2 Capital import and trade performance 50
3.3 Wage differentials and migration 58
4. Evaluation: competitiveness and exchange rates 59
5. Policy conclusions: which sort of integration? 61
Abstract 62
References 63
Markus Mende: Comment on: Klaus-Dieter Schmidt, Transition in Eastern Europe: The Integration of Goods and Factor Markets into the World Economy 67
References 70
Bas van Aarle: Currency Substitution and Currency Controls: the Polish \"Big Bang\" of 1990 71
1. Introduction 71
2. A small open economy with currency substitution 75
2.1 Seigniorage maximization 79
2.2 Efficient taxation 81
3. Currency controls 81
4. Empirical investigation of currency substitution and currency controls: the polish big bang of 1990 83
5. Conclusion 88
Appendix A 89
Abstract 91
References 91
Nina Budina / Sweder van Wijnbergen: Debt Management and Inflation Stabilization in Bulgaria 93
1. Introduction 93
2. Fiscal deficit and inflation in Bulgaria 94
Inflation and deficit financing 94
3. Domestic debt management and inflation stabilization 96
4. Foreign debt management and inflation stabilization 101
4.1 Foreign debt reduction deal 101
4.2 The impact of the foreign debt deal on inflation and fiscal deficits 101
4.3 The impact of real exchange rate depreciation or raising the cost of foreign borrow 106
4.4 Debt, money creation and the trade-off between current and future inflation 107
5. Conclusions 108
Abstract 108
References 109
Clemens Fuest / Bernd Huber: Government Deficits, Inflation, and Economic Transition 111
1. Introduction 111
2. The performance of fiscal and monetary policies in transition 112
2.1 Macroeconomic stabilisation and the budget deficit 112
2.2 The role of the budget deficit in economies in transition 115
3. Budget Deficits and Market Oriented Reforms 117
4. The problem of excessive inflation 122
4.1 Inflation and budget deficits 122
4.2 The Model 123
4.3 Inflation under credit rationing 124
4.4 Inflation with short-term nominal debt 125
4.5 Inflation with short-term and long-term nominal government debt 128
5. Conclusions 131
Abstract 132
References 132
Dietmar Wallisch: Comment on: Clemens Fuest and Bernd Huber, Government deficits, inflation, and economic transition 135
Content 135
Comment 137
Johannes Bröcker / Bernd Raffelhiischen: Fiscal aspects of German unification: Who is stuck with the bill? 139
1. Introduction 139
2. The simulation model 140
2.1 Household 140
2.2 Firm 143
2.3 Public sector 146
3. Macroeconomic aspects and public finance in transition 149
4. The catching-up process 152
5. Summary 160
Abstract 161
References 161
Frank D. Weiss: Comment on: J. Bröcker and B. Raffelhüschen, Fiscal Aspects of German Unification: Who is Stuck with the Bill? 163
Antonin Rusek: Transition to Markets in CEFTA Countries. A Comparative Overview 167
1. Introduction 167
2. History: economic reforms and the initial transition policies 169
2.1 The socialist past 169
2.2 The beginning of the transition processes 172
3. Toward modern market economies: 1992 - 1995 176
4. Future prospects 182
Abstract 186
References 186
Hubert Grabisch: Comment on: Antonin Rusek, Transition to Markets in CEFTA Counties 189
The course of macroeconomic events in the CEFTA countries 189
The role of CEFTA 194
References 196
Daniel Gros / Andrzej Gonciarz: Stabilization and Economic Reform in Russia, Ukraine and Belarus 197
1. Introduction 197
2. Structural distortions at the start 198
3. Trice liberalization ... but what else?' 200
4. Lack of adjustment in energy sector 201
5. External liberalization 204
5.1 Liberalization of international trade 204
5.2 Export performance 206
5.3 The foreign exchange market 210
6. Macroeconomic destabilization 211
7. Conclusions: consequences of non-reforming 215
Abstract 216
References 216
Rolf J. Langhammer: Comment on: Daniel Gros and Andrzej Gonciarz, Stabilization and Economic Reform in Russia, Ukraine and Belarus 219
Autorenverzeichnis 223