MACROECONOMIC EQUILIBRIUM AND REFORM IN A TRANSITIONAL ECONOMY

We build a general equilibrium macro model of a transitional economy t o reflect four stylized facts. Among these are that central planning h as left a legacy of highly concentrated industry and a residue of pric e controls and rationing. An 'almost' Classical Dichotomy obtains in t he model: monetary expansion leaves output and employment unchanged (d espite the existence of unemployment), though leisure time declines. H owever, the economy displays a high degree of complementarity between the state-controlled and private sectors, giving rise to Keynesian mul tiplier effects. We also analyse the effects of price-liberalization a nd privatization on the properties of the economy.