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.

Abstract

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.

Summary of WP/92/86

“Structural and Macroeconomic Determinants of the Output Decline in Poland: 1990-91” by Eduardo R. Borensztein and Jonathan D. Ostry

In the two years following the initiation of market-oriented reforms, Poland’s measured output declined by nearly 20 percent. Although the actual decline may have been somewhat smaller owing to systematic measurement biases and inadequate monitoring of the emerging private sector, it is unlikely that the qualitative picture would change significantly once these factors were taken into account. After surveying the main characteristics of the Polish economic program and the main developments in the real economy since reforms began, this paper looks at two issues that are central to interpreting the decline in economic activity.

Any economy facing a completely new relative price structure as Poland did at the start of 1990 is likely to experience an interim period during which output declines as resources are reallocated across sectors. This is especially true in Poland, where significant adjustment costs and uncertainty may delay an expansion of activities that are profitable under the new relative price structure. Although the extent of output decline has differed across sectors, employment reduction has been remarkably similar, suggesting that little reallocation of labor across different activities has taken place thus far. Other evidence reported in the paper also suggests that relatively little of the output decline can be attributed to structural change in the economy following the relative price shock.

This finding implies that much of the output decline is related to macroeconomic factors. This paper tries to determine which macroeconomic factors have been relatively important and, in particular, whether demand-side shocks (relating, for example, to tight fiscal and monetary policies) or supply-side shocks (relating to administered energy price increases combined with tight credit conditions imposed on state enterprises) have predominated. According to the results, the relative importance of these shocks has varied over time in line with the overall policy stance. The econometric results suggest that although administered energy price increases have had a sizable negative effect on aggregate supply, their impact on equilibrium output has been mitigated by the relative inelasticity of demand for Polish industrial goods.

Working Paper Summaries (WP/92/49 - WP/92/112)
Author: International Monetary Fund