Ga. Calvo et Ja. Frenkel, FROM CENTRALLY PLANNED TO MARKET-ECONOMY - THE ROAD FROM CPE TO PCPE, Staff papers - International Monetary Fund, 38(2), 1991, pp. 268-299
The early stages of transformation of centrally planned economiies int
o market economies are examined. In the transitional phase when an eco
nomy is no longer centrally planned, but not yet market based-when it
is a "previously centrally planned economy"-expectations play a key ro
le. A model is developed to analyze the consequences of expected price
liberalization, and the benefits from early development of financial
markets and speedy implementation of price reform are demonstrated. Wa
ys to reduce liquidity overhang are examined, the consequences of priv
atization are analyzed, and the benefits of an effective tax system ar
e highlighted.