Constraints on Enterprise Liquidity and Its Impact on the Monetary Sector in Formerly Centrally Planned Economies&ast

Istvan Abel and Pierre Siklos

Comparative Economic Studies, 1994, vol. 36, issue 1, 13-32

Abstract: This paper examines the role and effectiveness of monetary policy in a transition economy. We demonstrate that the type of restrictive policy pursued by the central bank plays a critical role but one which is likely to reduce the chances of a successful transition to a market economy. We examine interenterprise credit and how it is treated in a reformed banking system by noting the relationship between trade credit and inflation. While the implications of this relationship are well known they seem to have been largely forgotten by policymakers who have adopted a monetary policy consonant with those in Western industrialized countries. The paper also illustrates the consequences of reformers assuming a well-functioning market economy has been achieved when this is clearly not the case.

Date: 1994
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