Output Dynamics in Transition Economies under Alternative Exchange Rate Regimes

Christos Papazoglou and Eric Pentecost

Chapter 2 in Exchange Rate Policies, Prices and Supply-Side Response, 2001, pp 11-23 from Palgrave Macmillan

Abstract: Abstract It has become a stylized fact that transition economies suffer falls in output in the early years of liberalization, and several reasons have been postulated for this fall in real GDP. Borensztein, Demekas and Ostry (1993) argue, for example, that for Bulgaria and the Czech Republic supply shocks were the most important explanation with national factors capable of explaining nearly all the variation in output with sector-specific factors playing only a minor role. An alternative hypothesis due to Calvo and Coricelli (1992) is the credit-crunch hypothesis, whereby high real interest rates were imposed on enterprises, which responded by reducing their demand for credit and output levels. A third hypothesis is that at least part of the fall in output is a statistical exaggeration due to underreporting of private sector activity (Berg and Sachs, 1992; and Berg and Blanchard, 1994).

Keywords: Exchange Rate; Real Exchange Rate; Transition Economy; Capital Mobility; Exchange Rate Regime (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-55453-5_2

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DOI: 10.1057/9780230554535_2

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