Exchange Rate and the Price Level in Socialist Economies

International Monetary Fund

No 1990/050, IMF Working Papers from International Monetary Fund

Abstract: The paper examines how the evolution from a classical centrally planned economy to a more market-oriented system will enhance the linkage between the exchange rate and the domestic price level. However, during the transition--as the economy continues to be predominantly state-owned, the inherited production structure is only gradually modified, capital and labor mobility are still relatively low and financial discipline is less-than-complete--the elasticity of the domestic price level with respect to a change in the exchange rate, or, to a change in world market prices, may still be lower than in an otherwise comparable market economy.

Keywords: WP; elasticity; price level; market economy; passthrough elasticity; economy; price level effect; Passthrough elasticity equation; elasticities of substitution; equalization mechanism; elasticity approach; economic system; planned economy; substitution elasticity; Exchange rates; Exchange rate adjustments; Demand elasticity; Inflation; Eastern Europe (search for similar items in EconPapers)
Pages: 26
Date: 1990-01-01
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