Market Failure and Stagflation: Some Aspects of Privatisation in Poland

Wojciech Charemza

Economic Change and Restructuring, 1992, vol. 25, issue 1, 35 pages

Abstract: This paper investigates causes of the stagflation phenomena which appeared in Poland in the period after the "shortageflation", i.e. after February 1990. It is conjectured that one of the primary reasons for the appearance of the stagflation was substantial market uncertainty, which led to a market failure. The theoretical analysis is based on the D. Newbery-J. Stiglitz (1981) model of futures trading. This reveals that, in the presence of huge price variations a market is likely to fail if a substantial backwardation accompanies negative correlation between prices and quantities. The empirical evidence consists of testing market efficiency (weak and semi-strong forms) and the rational expectations hypothesis for the Polish consumption market and inflation in the period of shortageflation. It is found that the market survives the tests for weak efficiency but fails the test for semi-strong efficiency and rational expectations. Copyright 1992 by Kluwer Academic Publishers

Date: 1992
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