Establishing Monetary Stability in Emerging Market Economies

Establishing Monetary Stability in Emerging Market Economies

Establishing Monetary Stability in Emerging Market Economies

Establishing Monetary Stability in Emerging Market Economies

Synopsis

"There has been fierce debate about the optimal sequencing of economic reforms in emerging market economics. Many economists argue that for market-oriented systems to operate effectively, a reasonable degree of monetary stability is necessary. Rampant inflation, a common challenge for emerging economies, greatly reduces the chances that market-oriented reforms will be successful. In this comprehensive volume, a group of policy-oriented economists from North America, Europe, and the former Soviet Union explore the causes of monetary instability in reforming economies and evaluate alternative institutional mechanisms designed to reduce inflationary pressures. Considering the latest theoretical and empirical researchas well as the experiences of former Communist countries, including Russia and the erstwhile Soviet republics - the contributors view inflation as a political issue and make a case for the creation of strong political institutions. They argue that although government actions that stimulate inflation tend to have low costs or even benefits in the short run, they impose heavy costs on the economy in the longer term. Consequently, there is a strong need to develop institutional mechanisms to help ensure that decisionmakers place appropriate emphasis on the long-run consequences of policy actions." Title Summary field provided by Blackwell North America, Inc. All Rights Reserved

Excerpt

Thomas D. Willett, Richard C. K. Burdekin, Richard J. Sweeney and Clas Wihlborg

Reform has gone badly wrong in many of the formerly centrally planned economies. Economists did not think that the reform wprocess would be easy, but few anticipated how difficult the transition would prove for so many of the countries of central and eastern Europe and the former Soviet Union. There are bright spots, however; the performance of the Baltic nations and such countries as the Czech Republic, Hungary and Poland stand out in comparison with most of the economies in transition from centrally planned to market systems. The different degrees of success are perhaps most visible in the vast dispersion of rates of inflation, reported in the table below. Russia and many of the republics of the former Soviet Union have flirted with hyperinflation, but other countries, such as the Czech Republic and Hungary, have reduced inflation to industrial-country levels, and Estonia, Lithuania, Poland, and Slovenia have managed to keep inflation within a range of 20 to 50 percent a year -- not ideal, but far better than the annual rates in the hundreds and thousands of percent per year that have characterized a majority of the formerly centrally planned economies. (For analysis of the role of inflation in the economic reform process in these countries, see the papers in this volume by Arbetman and Kugler, Banaian, Lewarne, Hinds, Viksnins and Rimshevitchs, and Siklos and Abel.)

These differences in inflation performance largely mirror the progress of reform in these countries; in our judgment this is not coincidental. Though much debate among professional economists has focused on technical disputes . . .

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