Stabilization and Growth in Transition Economies: The Early ExperienceThis paper analyzes the growth and stabilization experience in 26 transition economies in eastern Europe, the former Soviet Union, and Mongolia for the period 1989-1994. Inflation rates have declined significantly in most countries following an inflation stabilization program. Growth resumes after stabilization occurs, typically with a lag of about two years. Reducing inflation thus appears to be a precondition for growth. An econometric analysis of the short-run determinants of inflation and growth illustrates the key roles of fixed exchange rates, improved fiscal balances, and structural reforms in spurring growth and lowering inflation, and confirms that inflation stabilization programs have been beneficial for growth even after controlling for structural reforms. |
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26 countries 26 economies 50 percent Albania annual inflation Armenia Baltics breakup CMEA exports Croatia Cumulative output Denizer determinants of growth disinflation dummy eastern Europe econometric analysis end-period exchange rate regime exports to GDP Fiscal Balance Profiles fiscal deficits fixed Flexible former Soviet Union FSU countries FSUM FYRM growth and inflation growth rate growth revived high inflation Hyperinflation IMF staff estimates inflation and growth inflation rate initial per capita intra-FSU exports Jeffrey Sachs Kyrgyz Republic Latvia Lithuania macroeconomic Market Economy measures Melo mimeo Monetary Mongolia national authorities negative Olivier Blanchard output declines Panel pegged exchange rate percent of GDP period Poland price liberalization profiles in stabilization purchasing power parity ratio of CMEA REAL GDP GROWTH REAL GDP INDEX reducing inflation regressions sample stabilization attempt structural reforms T+1 T+2 T+3 T+2 T+3 STABILIZATION Tajikistan transition economies transition process Transition Report Turkmenistan World Bank