DP626 The `Big Bang' Versus `Slow but Steady': A Comparison of the Hungarian and the Polish Transformations

Author(s):	István Abel, John Bonin
Publication Date:	January 1992
Keyword(s):	Eastern Europe, Economic Transformation, Exchange Rate Anchor, Real Wage, Stabilization Policy
JEL(s):	E63, F31, P52
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=626

This paper discusses three aspects of stabilization and international integration: the real wage; inflation; and the real effective exchange rate. Using empirical evidence on inflation and the real effective exchange rate, we evaluate the gradualist option represented by the Hungarian reforms. The prospect for continuing a programme based on a real exchange rate anchor supported by a crawling peg tied to a basket of convertible currencies is assessed. These issues are compared with the experience of Poland, which is considered to be an example of shock therapy using a nominal anchor.