Internal Currency Markets and Production in the Soviet Union

Goldberg, L.S. & Karimov, I. (1991). Internal Currency Markets and Production in the Soviet Union. IIASA Working Paper. IIASA, Laxenburg, Austria: WP-91-025

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Abstract

Changes in macroeconomic and microeconomic policies may yield surprising results when applied within an economy in the process of economic reform. This paper examines the effectiveness of policy instruments introduced as components of partial economic-reform programs, as in the Soviet Union. It is shown that the market power of producers in domestic industries and the design of currency auctions or interbank markets are key determinants, respectively, of the magnitude and direction of the enterprise responses to policy changes and external shocks. Policy-induced shifts in production and the hard currency allocation decisions of producers are determined. These optimizing choices have implications for: the supply of goods available for domestic consumption; domestic goods prices; the supply of hard currency to internal auctions or interbank markets; the free internal price of foreign exchange; export volumes; and the overall trade balance.

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