Output Decline in Eastern Europe: A Comparison of Some Explanations for Poland

Abstract:     
The paper combines and compares in a uniform framework various explanations for output decline during transition in Eastern Europe. The framework is provided by a computable general equilibrium model, calibrated for Poland, and used to quantify the consequences of some phenomena advanced as reasons for output collapse. From the simulation results, the most convincing explanation seems to lie on the supply, rather than demand side. A slight change in production efficiency leads to a relatively large change in output. At the same time, a very strong demand shock is necessary to produce a relatively minor effect on output. In particular, a very substantial reduction in consumer demand is needed to produce output contraction.

JEL Classification: C68, O49, P27

Accepted Paper Series