Shortage and currency substitution in transition economies: Bulgaria, Hungary, Poland, and Romania

Robert Mulligan and Erwin Nijsse

International Advances in Economic Research, 2001, vol. 7, issue 3, 275-295

Abstract: This paper examines currency substitution in Bulgaria, Hungary, Poland, and Romania during the end of central planning and transition to market economies. Before liberalization, central European economies faced increasing shortage and repressed inflation in the official sector. Households held substantial wealth in real assets and foreign currency. Furthermore, part of their savings was held as hunting money against potential opportunities to buy in bulk at bargain prices in official stores or pay a premium price on the black market. The shift from centrally-planned to market economies is modeled with a shortage variable. Foreign currency demand and consumption functions are estimated by the Johansen procedure. Environmental constraints play a key role in interpreting estimates. The official sector shortage is an important determinant of foreign currency demand in each country. Copyright International Atlantic Economic Society 2001

Date: 2001
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DOI: 10.1007/BF02295398

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