Journal of Economic Perspectives: Vol. 5 No. 4 (Fall 1991)


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Credit Markets, Credibility, and Economic Transformation

Article Citation

Calvo, Guillermo A., and Jacob A. Frenkel. 1991. "Credit Markets, Credibility, and Economic Transformation." Journal of Economic Perspectives, 5(4): 139-148.

DOI: 10.1257/jep.5.4.139


This paper focuses on the special role that capital markets play in the transformation of centrally planned economies into well-functioning market economies. We demonstrate that underdeveloped credit markets inhibit the effectiveness of price reform, monetary and credit policies, and trade liberalization. We explore various ways to overcome the difficulties associated with the underdeveloped credit markets. In this regard, we examine the implications of "cleaning" the balance sheets of enterprises and banks from nonperforming loans, as well as ways to enhance credibility. The paper concludes with a brief discussion of sequencing of economic reform measures.

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Calvo, Guillermo A. (IMF)
Frenkel, Jacob A. (Bank of Israel)

JEL Classifications

P21: Socialist Systems and Transitional Economies: Planning, Coordination, and Reform
P34: Socialist Institutions and Their Transitions: Financial Economics


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