Stylized facts about stabilization in central and eastern Europe

This paper analyzes the stabilization policies of the ten central and eastern European countries that have negotiated a Europe Agreement with the European Union and had officially applied for European Union membership by the end of 1997. This paper is a cross-country study of time series. Using a diagrammatic approach, the empirical findings are depicted in two-dimensional inflation-and-growth diagrams. The study shows that some common features of the macroeconomic data can be observed for most of the countries of the sample. From discussing potential determinants of the empirical findings, the analysis suggests that early liberalization attempts have had a strong positive impact on the inflation-growth pattern. While the influence of central bank legislation seems to be negligible, the choice of the exchange rate regime seems to play a crucial role. Regarding fiscal policy, the influence seems to be less obvious. This study concludes that the precondition for successful transformation and stabilization of the economy is a comprehensive approach that consists of early liberalization and tight macroeconomic policy.