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From Centrally-Planned to Market Economies: The Road from CPE to PCPE

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  • Mr. Jacob A. Frenkel
  • Mr. Guillermo Calvo

Abstract

This paper deals with the early stages of transformation of centrally-planned economies (CPEs) into market economies during which expectations play a key role. It focuses on the transitional phase during which the economy is not any more a CPE but has not yet become a market economy. During this phase the economy is referred to as a “previously centrally-planned economy” (PCPE). A simple model is developed to analyze the consequences of expected price liberalization. The CPEs undergoing transformation lack depth and breadth of financial markets. The analysis illustrates the benefits from an early development of such markets. It demonstrates the cost of a fine-tuning strategy and the benefits from a quick implementation of price reform. The paper also examines means to reduce “liquidity overhang,” and shows that they involve taxation of one form or another. The consequences of privatization are analyzed and the benefits from an early development of an effective tax system highlighted.

Suggested Citation

  • Mr. Jacob A. Frenkel & Mr. Guillermo Calvo, 1991. "From Centrally-Planned to Market Economies: The Road from CPE to PCPE," IMF Working Papers 1991/017, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1991/017
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    References listed on IDEAS

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    1. R McKinnon, 1991. "Financial Control in the Transition to a Market Economy," CEP Discussion Papers dp0040, Centre for Economic Performance, LSE.
    2. Fischer, Stanley & Gelb, Alan, 1990. "Issues in socialist economy reform," Policy Research Working Paper Series 565, The World Bank.
    3. Frenkel, Jacob A. & Rodriguez, Carlos A., 1980. "Exchange Rate Dynamics and Overshooting Hypothesis," Foerder Institute for Economic Research Working Papers 275323, Tel-Aviv University > Foerder Institute for Economic Research.
    4. Calvo, Guillermo A & Rodriguez, Carlos Alfredo, 1977. "A Model of Exchange Rate Determination under Currency Substitution and Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 617-625, June.
    5. International Monetary Fund, 1990. "Macroeconomic Adjustment and Reform in Planned Economies," IMF Working Papers 1990/027, International Monetary Fund.
    6. Thomas,Alex M., 2021. "Macroeconomics," Cambridge Books, Cambridge University Press, number 9781108731997, September.
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    Cited by:

    1. Donald Cox & Emmanuel Jimenez & Wlodek Okrasa, 1997. "Family Safety Nets And Economic Transition: A Study Of Worker Households In Poland," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(2), pages 191-209, June.
    2. Papazoglou, Christos & Pentecost, Eric J., 2004. "The dynamic adjustment of a transition economy in the early stages of transformation," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 547-561, September.
    3. Steve H. Hanke and Kurt Schuler, 1993. "Currency Boards and Currency Convertibility," Cato Journal, Cato Journal, Cato Institute, vol. 12(3), pages 687-727, Winter.
    4. Fardmanesh, Mohsen & Tan, Li, 1996. "Wage and Price Control Policies in Socialist Transitional Economies," Center Discussion Papers 28515, Yale University, Economic Growth Center.
    5. A. James Meigs, 1993. "Eurodollars: A Transition Currency," Cato Journal, Cato Journal, Cato Institute, vol. 12(3), pages 711-730, Winter.
    6. Bomhoff, Eduard J., 1992. "Monetary reform in Eastern Europe," European Economic Review, Elsevier, vol. 36(2-3), pages 454-458, April.
    7. Guillermo A. Calvo & Jacob A. Frenkel, 1991. "Obstacles to Transforming Centrally-Planned Economies: The Role of Capital Markets," NBER Working Papers 3776, National Bureau of Economic Research, Inc.
    8. Guillermo A. Calvo & Jacob A. Frenkel, 1991. "Credit Markets, Credibility, and Economic Transformation," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 139-148, Fall.
    9. Truong Dhd. & Gates, C. L., 1992. "Effects of government policies on the incentive to invest, enterprise behaviour and employment: the case study of Vietnam," ILO Working Papers 992878513402676, International Labour Organization.

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