MACROECONOMIC EQUILIBRIUM AND REFORM IN A TRANSITIONAL ECONOMY

We build a general equilibrium macro model of a transitional economy to reflect four stylized facts. Among these are that central planning has left a legacy of highly concentrated industry and a residue of price controls and rationing. An 'almost' Classical Dichotomy obtains in the model: monetary expansion leaves output and employment unchanged (despite the existence of unemployment), though leisure time declines. However, the economy displays a high degree of complementarity between the state-controlled and private sectors, giving rise to Keynesian multiplier effects. We also analyse the effects of price-liberalization and privatization on the properties of the economy.