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The Macroeconomic Consequences of Anticipated Price Reform
Author(s) -
Fender J.,
Laing D.
Publication year - 1998
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/1468-0343.00048
Subject(s) - economics , relevance (law) , monetary economics , liberalization , price setting , macroeconomics , microeconomics , international economics , market economy , political science , law
This paper uses a two‐period model to examine the macroeconomic consequences of anticipated price liberalization. In the first period prices are controlled, there is excess demand for goods and consumers must engage in costly queuing to make purchases. In the second period prices are freed, eliminating the need for queues. We establish the possibility of multiple Pareto‐rankable equilibria and examine the effects of contingent policy rules. The framework enables us to examine a number of issues of importance, such as the problem of the monetary overhang, the relevance of budgetary policies and the effects of foreign aid.