1. ¹University of Birmingham
2. ²University of Essex and the Pennsylvania State University

^*We thank Julian Cooper, Ping Wang and two anonymous referees for helpful suggestions. Comments received during a Penn State macroworkshop and at the Carnegie-Mellon/Penn-State/Pittsburgh conference held at PSU April 1992 are appreciated.

Abstract

This paper constructs a two-period macroeconomic model to analyze the implications of anticipated market reforms for the economic performance of a centrally planned economy (CPE). In the first period an excess demand for goods develops at prices set by central planners, forcing consumers either to queue to obtain goods from state retailers or to purchase goods on the black market. In the second period a competitive market economy prevails. The model is used to study issues such as the role of foreign aid and the likely impact of domestic monetary and fiscal reforms.