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Mr. Marcus Pramor and Ms. Natalia T. Tamirisa
How much convergence has been achieved between Central and Eastern European (CEE) economies and the eurozone? We explore this question by comparing long-run volatility trends in CEE currencies and the euro. We find that these trends are closely correlated, pointing to convergence in the economic and financial structures of these economies. Nonetheless, the degree of commonality remains weaker than what had been found for major European currencies before the introduction of the euro. Spillovers of volatility across regional markets appear to have diminished over time, with the exception of the Hungarian forint, which remains a source of volatility shocks to regional currencies.
Mr. George Kopits

CEE for the FSU. 1/ These differences involve the extent of the initial macroeconomic imbalance, economic openness, industrial concentration, market segmentation, the level of institutional development, and cultural attitudes. At the beginning of the 1990s, the FSU faced a more severe macro-economic imbalance than had been experienced by most CEE economies (with the possible exception of Albania and Bulgaria) when they embarked on the transition. 2/ Moreover, from the outset, CEE economies took major steps toward external liberalization. Except for a few

Mr. Daniel Leigh, Ms. Stefania Fabrizio, and Mr. Ashoka Mody

a substantial magnitude is propagating its waves through the world economy. The CEE economies are being subjected to a severe test. Some countries, in particular, had placed themselves in a more vulnerable situation than others and they are likely to suffer substantial contraction. However, as of this writing, it is not evident that the CEE economies as a group will ultimately be impacted more so than other regions. As the global crisis continues to unfold, countries in all regions are feeling the pressure, with specific countries in those regions under particular

Mr. Ales Bulir and Ms. Zuzana Brixiova
Bureaucratically organized systems tend to be less efficient than economies in which agents are free to choose their output targets, as well as the means to meet them. This paper presents a simple model of planner-manager interactions and shows how bureaucratic economies can end up in a low-effort, low-growth equilibrium even though they may have started in high-effort , high-growth equilibrium. The empirical evidence from eight Central and Eastern European countries during 1948-49 is consistent with our model results, namely, that the growth decline was systemic in nature. The results are applicable to countries in other regions with heavy bureaucratic involvement in the economy.
Zhen Kun Wang

–95 (CEE) and 1992–95 (NIS). Has the volume of external financial assistance been adequate? This controversial question can be answered in a number of different ways. Aid under the Marshall Plan after World War II averaged 2.5 percent of the GDP of recipient countries. Total official disbursements to the CEE economies accounted for an average of about 2.7 percent of their GDP in 1991–93. The fact that GDP in these economies is under-recorded may make this ratio larger than it actually is, but on this measure the Marshall Plan was not materially larger than official

Mr. George Kopits
This paper reviews lessons in fiscal consolidation for the former Soviet Union that emerge from the experience of Central and Eastern European economies in transition. A central lesson is the need to support the macroeconomic stabilization with a front-loaded fiscal adjustment. Consistent with this adjustment path, structural reform in the tax and expenditure areas should be aimed at allocative efficiency and fairness, and its sequencing be predicated largely on administrative constraints. In the face of the uncertainty of fiscal projections, formulation of contingency measures is necessary. In addition, elimination of submerged fiscal imbalances, stemming from quasi-fiscal activities of state-owned nonfinancial enterprises and financial institutions, is just as important as correcting the measured budget deficit.