ABSTRACT
This chapter argues that the shock-therapy treatment of inflation is generally preferable, although there are some important economic and political obstacles that preclude immediate macroeconomic stabilization in Russia. Since the former Soviet republics started major market-oriented reforms in January 1992 by deregulating prices, all except the Baltic States have failed to achieve macroeconomic stability. One possible explanation is that the Russian government and the central bank of Russia in early 1992 were not as committed to macroeconomic stability as their East European counterparts. Russia and other Commonwealth of Independent States countries adopted a different transition model: virtual overnight deregulation of prices followed by radical or more gradual structural reforms, including privatization and the creation of viable banking and financial institutions, without macroeconomic stability. Early 1994 predictions that inflation would rise to 50 percent a month by summer and that Russian economy would be “Ukrainized” did not come true.
