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This paper examines the coexistence of free prices and shortages for a range of consumer goods in Ukraine during 1992. Enterprises making consumer goods were substantially free to set market-clearing prices. Yet, Ukraine’s official consumer market experienced continued shortages, while the same goods traded at higher prices in parallel markets. The paper advances a model of enterprise behavior in an environment of central allocation of inputs at preferential prices. We show that central allocation of key inputs according to perceived “need” creates incentives for excess demand to be perpetuated despite formal price liberalization. The analysis brings forth the importance of abolishing allocation mechanisms for price liberalization to bring its full efficiency effects.

Deflation --- Environment --- Environmental Economics --- Environmental economics --- Environmental Economics: General --- Environmental sciences --- Government policy --- Industry Studies --- Inflation --- Macroeconomics --- Market Structure and Pricing: General --- Population --- Price controls --- Price Level --- Prices --- Public finance & taxation --- Socialist Enterprises and Their Transitions --- Socialist Systems and Transitional Economies: Factor and Product Markets --- Socialist Systems and Transitional Economies: Prices --- Tax incentives --- Taxation --- Taxation, Subsidies, and Revenue: General --- Ukraine

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It is not unusual for reforming socialist economies to relax wage controls without hardening budget constraints on enterprises or freeing consumer goods prices. This policy can be dangerously destabilizing. While higher wages permit workers to purchase more of some goods, they also tend to exacerbate shortages and to breed waste and corruption. Beyond a certain level, economy-wide wage hikes will worsen worker welfare. This is true regardless of whether deficit goods are strictly rationed, are sold randomly at official prices to queuing workers, or are offered to workers by “insiders” only at black market prices. However, the form of allocation does influence output and worker welfare.

Labor --- Macroeconomics --- Criminology --- Wages, Compensation, and Labor Costs: General --- Bureaucracy --- Administrative Processes in Public Organizations --- Corruption --- Labor Economics: General --- Price Level --- Inflation --- Deflation --- Aggregate Factor Income Distribution --- Socialist Systems and Transitional Economies: Factor and Product Markets --- Industry Studies --- Population --- Incomplete Markets --- Labour --- income economics --- Corporate crime --- white-collar crime --- Wages --- Price controls --- Income --- Crime --- Prices --- National accounts --- Labor economics --- Government policy --- Russian Federation --- Income economics --- White-collar crime

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During the transition from a centrally planned economy to a market economy, many countries seem to have experienced some degree of macroeconomic instability. This paper attempts to provide a theoretical explanation of this phenomenon. The paper develops a simple monetary model and shows how macroeconomic stability can be achieved in a rigid centrally planned economy, despite the inherent structural imbalances and irrational price system. On the other hand, the study shows that without hardening enterprise budget constraints, wage and price decontrol tends to destablize the economy and may lead to persistent budget deficits and inflation. The paper also provides a rigorous analysis of household savings and money demand in a shortage economy, and clarifies the somewhat confusing concept of “monetary overhang” in the literature.

Aggregate Factor Income Distribution --- Budget planning and preparation --- Budget Systems --- Budget --- Budgeting & financial management --- Budgeting --- Economic sectors --- Economics of specific sectors --- Economics --- Economics: General --- General Equilibrium and Disequilibrium: Other --- Income economics --- Income --- Industry Studies --- Informal Economy --- Informal economy --- Informal sector --- Labor --- Labour --- Macroeconomics --- Monetary base --- Monetary economics --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Money and Monetary Policy --- Money supply --- Money --- National accounts --- National Budget --- Population --- Public financial management (PFM) --- Socialist Systems and Transitional Economies: Factor and Product Markets --- Socialist Systems and Transitional Economies: Prices --- Underground Econom --- Wages --- Wages, Compensation, and Labor Costs: General --- Russian Federation

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This paper assesses external trade statistics in Lao PDR by looking at mirror statistics, and with reference to international experience in compilation and dissemination of external trade data. We find that exports could be underreported by 8 to 50 percent, while imports could be underreported by 30 to 70 percent, and the trade deficit could be 20 percent to 280 percent higher. Underreporting is concentrated in trade with major partners, including Thailand (17 percent of total trade), China (10 percent of total trade) and Vietnam (3 percent of total trade). On the export side, underreporting is concentrated in wood and wood products, while for imports it is concentrated in a much wider variety of products, including food, fuel, vehicles, machinery, chemical products, plastics and rubber, and construction materials. Possible sources and implications of these discrepancies are discussed.

Investments: Energy --- Exports and Imports --- Empirical Studies of Trade --- Regulation and Industrial Policy: General --- Retail and Wholesale Trade --- e-Commerce --- Economic History: Transport, Trade, Energy, Technology, and Other Services: Asia including Middle East --- Socialist Systems and Transitional Economies: Factor and Product Markets --- Industry Studies --- Population --- Renewable Resources and Conservation: Issues in International Trade --- Trade: General --- Metals and Metal Products --- Cement --- Glass --- Ceramics --- International economics --- Investment & securities --- Imports --- Exports --- Trade balance --- Trade deficits --- Metals --- International trade --- Commodities --- Balance of trade --- Lao People's Democratic Republic --- E-Commerce

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The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.

Exports and Imports --- Foreign Exchange --- Labor --- Macroeconomics --- Money and Monetary Policy --- Taxation and Subsidies: Externalities --- Redistributive Effects --- Environmental Taxes and Subsidies --- Monetary Policy --- Monetary Policy, Central Banking, and the Supply of Money and Credit: Other --- Macroeconomic Aspects of International Trade and Finance: General --- Comparative Studies of Particular Economies --- General Aggregative Models: General --- Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General --- Macroeconomic Analyses of Economic Development --- Empirical Studies of Trade --- Economic Development: Agriculture --- Natural Resources --- Energy --- Environment --- Other Primary Products --- Economywide Country Studies: Africa --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Socialist Institutions and Their Transitions: Consumer Economics --- Health, Education and Training, Welfare, and Poverty --- Fiscal Policy --- International Lending and Debt Problems --- Price Level --- Inflation --- Deflation --- Money Supply --- Credit --- Money Multipliers --- Information and Market Efficiency --- Event Studies --- Open Economy Macroeconomics --- Studies of Particular Policy Episodes --- Money and Interest Rates: Forecasting and Simulation --- Socialist Systems and Transitional Economies: General --- Demand for Money --- Policy Objectives --- Policy Designs and Consistency --- Policy Coordination --- General Equilibrium and Disequilibrium: Other --- Socialist Systems and Transitional Economies: Prices --- Socialist Systems and Transitional Economies: Factor and Product Markets --- Industry Studies --- Population --- Illegal Behavior and the Enforcement of Law --- Comparison of Public and Private Enterprises and Nonprofit Institutions --- Privatization --- Contracting Out --- Financial Aspects of Economic Integration --- Index Numbers and Aggregation --- leading indicators --- Time-Series Models --- Dynamic Quantile Regressions --- Dynamic Treatment Effect Models --- Diffusion Processes --- State Space Models --- Macroeconomics: Consumption --- Saving --- Wealth --- Current Account Adjustment --- Short-term Capital Movements --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- Incomes Policy --- Price Policy --- Comparative Economic Systems: General --- Auctions --- International Financial Markets --- Business Taxes and Subsidies --- Other Economic Systems: Productive Enterprises --- Factor and Product Markets --- Prices --- Firm Objectives, Organization, and Behavior: General --- Public Enterprises --- Public-Private Enterprises --- Firm Behavior --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Financial Markets and the Macroeconomy --- Economic Development: Financial Markets --- Saving and Capital Investment --- Corporate Finance and Governance --- Noncooperative Games --- General Financial Markets: Government Policy and Regulation --- International Policy Coordination and Transmission --- Business Fluctuations --- Cycles --- Economywide Country Studies: Asia including Middle East --- Comparative Studies of Countries --- Economic Growth of Open Economies --- One, Two, and Multisector Growth Models --- General Equilibrium and Disequilibrium: General --- Intertemporal Consumer Choice --- Life Cycle Models and Saving --- Fiscal Policies and Behavior of Economic Agents: General --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Wages, Compensation, and Labor Costs: General --- Wage Level and Structure --- Wage Differentials --- International Investment --- Long-term Capital Movements --- Debt --- Debt Management --- Sovereign Debt --- Socialist Institutions and Their Transitions: Financial Economics --- Interest Rates: Determination, Term Structure, and Effects --- Central Banks and Their Policies --- International Monetary Arrangements and Institutions --- Economic Growth and Aggregate Productivity: General --- Economywide Country Studies: General --- Simulation Methods --- Methodology for Collecting, Estimating, and Organizing Macroeconomic Data --- Data Access --- International Law --- Portfolio Choice --- Investment Decisions --- Efficiency --- Optimal Taxation --- Measurement of Economic Growth --- Aggregate Productivity --- Cross-Country Output Convergence --- International Finance: Other --- Data Collection and Data Estimation Methodology --- Computer Programs: Other Computer Software --- General Aggregative Models: Forecasting and Simulation --- State and Local Budget and Expenditures --- Trade Policy --- International Trade Organizations --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Monetary economics --- International economics --- Public finance & taxation --- Currency --- Foreign exchange --- Government debt management --- Currencies --- Dollarization --- Demand for money --- Public financial management (PFM) --- Money --- Monetary policy --- Debts, Public --- China, People's Republic of --- Leading indicators