The Dynamic Adjustment of a Transition Economy in the Early Stages of Transformation

Christos Papazoglou and Eric Pentecost

No 3, Working Papers from Bank of Greece

Abstract: This paper develops a model of a representative transition economy to explain the stylised facts of output declines and real exchange rate appreciation in the early stages of transformation. These facts can be explained by supply-side shocks, interest rate liberalisation or a reduction in core inflation. The policy implication is that price liberalisation in advance of financial liberalization and structural reform, including widespread privatisation of the production process, necessarily results in some temporary loss of output.

Keywords: Transition dynamics; overshooting; competitiveness; output decline (search for similar items in EconPapers)
JEL-codes: F41 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2003-05
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Citations: View citations in EconPapers (5)

Published in Journal of Macroeconomics, 2004, 26 (3), pp.547-561

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Journal Article: The dynamic adjustment of a transition economy in the early stages of transformation (2004)
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