Discussion paper

DP758 Macroeconomic Equilibrium and Reform in a Transitional Economy

We build a general equilibrium macroeconomic model of a transitional economy to reflect five stylized facts. Among these are that central planning has left a legacy of highly concentrated industry and a residue of price controls and rationing. An `almost Classical' dichotomy obtains in the model: monetary expansion leaves output and unemployment unchanged (despite the existence of unemployment), though leisure time declines. The economy displays a high degree of complementarity between the state-controlled sector and the private sector, however, giving rise to multiplier effects. We analyse the effects of price liberalization and privatization in this framework.

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Citation

Dixon, H (1993), ‘DP758 Macroeconomic Equilibrium and Reform in a Transitional Economy‘, CEPR Discussion Paper No. 758. CEPR Press, Paris & London. https://cepr.org/publications/dp758