Istvan Abel

Credit, imports and inventories in cpes causality test for the hungarian economy

Abstract Granger causality tests are used to detect the relationships between investment and working capital credit, imports in convertible and non-convertible areas, and input and output inventory investments.

Crippled Monetary Policy in Transforming Economies: Why Central Bank Independence Does not Restore Control

With privatization programs stalled in many of the transforming countries, the importance of creating a flexible and effective capital market in the earlier stages of the transition is gaining recognition. (Brainard (1991)) asserts that a reasonably well-functioning capital market is a necessary condition for privatization to occur on a large scale.2 According to Brainard, although all proposals for reforming financial institutions in transforming countries begin with increasing the financial discipline on companies they miss the essential point and thus fail to produce the desired result. For him, the crux of the issue is balance sheet losses. He recommends “sanitizing” company balance sheets using one or some combination of bankruptcy, rehabilitation, and privatization.

Stabilization and convertibility in the transition: the legacies of the twin deficits

Abstract To characterize the macroeconomic disequilibrium in a typical European transforming country we construct a simple one-sector open macroeconomic model with restrictions on capital account transactions. Using this model we analyse the medium-term effects of the transformation, with special reference to the implications of foreign direct investment on the real exchange rate and the possible incompatibility of trade liberalization and economic stabilization. In the model, we follow the absorption approach in characterizing external transactions and assume that inward foreign direct investment is the only allowable private capital account item. Two crucial aspects of the transformation from the Hungarian perspective, i.e. foreign direct investment and the legacy of foreign debt, are highlighted.

Does levelling lead to shortages? An empirical test

In his survey article on the Hungarian reform process, Kornai refers to laws against “unfair profit” [ 1, p. 1695 ] and argues that soft budget constraints hinder profitable firms because of a “levelling” phenomenon. Kornai provides a table of transition probabilities using data for 1982 that indicates the extent to which levelling is practiced on profitable firms [ 1, 1697 1. Examining the role of regulation on enterprise reform, Hare [ 2 ] argues that the main effect of the prevailing tax and subsidy structure in Hungary during the period of New Economic Mechanism (NEM) was the levelling of incomes across the economy. In a detailed study, Kornai and Matits [ 31 characterize the distortions in the pricing system introduced by non-uniform taxes and subsidies. Our objective in this paper is to study the effect of levelling on supply decisions in a prototypic Hungarian enterprise during the NEM period. In this way, we hope to provide some analytical underpinnings for the supposed adverse effects of attenuating the profit motive in a market economy. In the next section, we use the modified profit function from Abel and Bonin [4] to describe the maximand of a regulated Hungarian firm in a Mills-type [ 7 1, fixed-price, inventory model. We impose a constraint that represents the manager’s perception of the impact of levelling on current profit. From the maximization exercise, we derive an equation containing a constant term that is useful in determining whether or not the constraint is binding. If the constraint is binding, current production is curtailed. In this way, levelling may lead a profitable firm to restrict supply and, thus, increase the probability of a shortage situation at the current fixed price. In Section 3, we estimate an equation using sectoral data for Hungary from 1974 through 1984 that is similar to the one estimated in Abel and SzCkely [ 5 ] except that it contains industry-specific dummies. The constant terms, differentiated by sector, are examined to determine in which industries the constraint is binding. The paper concludes with a brief interpretation of the results and suggestions for future work.

Variants of Bankruptcy

This essay surveys the economic parameters of dissolving enterprises and bankruptcy procedures. It points out that--rules applied during the dissolution of enterprises notwithstanding--firms often end up extinct even when reorganization would reduce their creditors losses. At the same time, the freedom to self-initiate bankruptcy proceedings means that the opportunities offered by reorganization are available even to enterprises in whose cases reducing the loss of all creditors would call for their dissolution.

Earnings-Regulation and Inflation

By analyzing the behavior of Hungarian enterprises in negotiating their position, we present the effect of changing parameters in earnings regulation on inflation Enterprises in a negotiating position must utilize a certain amount of subsidy in order to maintain effectiveness and remain widtin acceptable pricing limits. While pricing and production subsidies are deflationaty in naure, subsidies related to budgetary elements have an inflationary effect Contrry to the popular view, if the sales tax rate is high, increasing the tax rate on profits has a deflationy effect Withholdings attached to budgetary elements bring about deflatio, regardless of the other regulathig elements.