Internal and external balance in a centrally planned economy

This paper presents a model of an open centrally planned economy. In a framework that allows disequilibrium and (informal) quantity rationing, we seek to represent both the effects of domestic macroeconomic processes on trade flows and the effects on domestic macro variables of foreign-sector phenomena. We investigate the adjustment of the system to exogenous shocks and the policy trade-offs facing the planners, using a diagrammatic apparatus analogous to the Swan and Mundell diagrams for an open developed market economy. The model is also intended to serve as a basis for specification of empirical models of the macroeconomic aspects of foreign trade in centrally planned economies.