The Real and Monetary Impacts of Exogenous Economic Disturbances Upon Centrally Planned Economies: With an Application to Poland

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The Carl Beck Papers in Russian and East European Studies, ISSN: 2163-839x, Vol: 0, Issue: 405, Page: 53

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Kemme, David M.;
University Library System, University of Pittsburgh; The Carl Beck Papers in Russian and East European Studies
article description
The impact of international economic disturbances upon the centrallyplanned economies (CPEs) of the Soviet Union and Eastern Europe has been aparticularly important area of research. Neuberger and Tyson (1980) and thenumerous contributors to that volume provide a bench mark for the developmentof open economy macroeconomics of CPEs. This paper provides an extension ofthe work of Wolf ( 1978b), ( 1980), inter alia, for the CPE and modifiedcentrally planned economy (MCPE). The analysis below explicitly considers thereal and monetary impacts of exogenous disturbances in a model with two typesof monies - enterprise deposits and household currency - and both consumergoods and intermediate products (or capital services), each of which may havea fixed or market determined price. The model is unique not only in itsdetail but also in that it provides a flow of funds approach whichincorporates wealth effects. The fundamental result is that exogenousdisturbances do have an impact - either real or monetary - upon the domesticeconomy of the CPE even though price-equalization taxes or subsidies eliminatethe most direct potential impacts. Only via a finely tuned policy of price ortax (subsidy) adjustments or the imposition of trade controls can the impactbe completely eliminated. This result is contrary to the accepted wisdom thatthe price-equalization mechanism in CPEs completely and automaticallyinsulates the domestic economy.