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Shock Therapy in Transition Countries: A Behavioral Macroeconomic Approach

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  • Yuemei Ji

    (University College London)

Abstract

I use a behavioral model to analyze how reforms in transition countries (i.e., price liberalization and competition policy) may affect their business cycle. The novelty of such a model is that the business cycle is generated endogenously interacting with confidence factors. It is assumed that agents do not form rational expectations, and they use simple rules and evaluate the forecasting performances of these rules ex-post. This paper generates policy implications that shock therapy may not be the ideal option for these countries as it may generate macroeconomic instability. The result of this model is in line with the recent macroeconomic literature that the size and the sequencing of reforms matter.

Suggested Citation

  • Yuemei Ji, 2023. "Shock Therapy in Transition Countries: A Behavioral Macroeconomic Approach," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(3), pages 483-510, September.
    • Handle: RePEc:pal:compes:v:65:y:2023:i:3:d:10.1057_s41294-023-00211-z
    DOI: 10.1057/s41294-023-00211-z
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    1. Elodie Douarin & Paul A. Wachtel, 2023. "Introduction to Symposium in Honour of Prof. Oleh Havrylyshyn," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(3), pages 409-415, September.

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    More about this item

    Keywords

    Behavioral macroeconomics; Shock therapy; Gradualism; Price liberalization; Competition reforms;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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