ABSTRACT
Keynesian micro foundations of macro models emphasize the non-competitive nature of the economy. Most firms are setting their own prices rather than accepting those set in markets. External sales would decline due to phasing out Council for Mutual Economic Assistance. Even if the aggregate effective demand in real terms is maintained at pre-reform level through inflation-indexed wage, government and investment expenditures increases, foreign competitors’ penetration into the domestic market would reduce demand for domestic production. Fashionable phased stabilization programs focus on privatization and play down genuine reforms, like tax reform and streamlining the public sector. The crux of the hyperinflation issue is that, only countries which could make a fiscal reform and enforce fiscal discipline could end hyperinflation. Turkey could have quickly solved the high-inflation problem of the last two decades by a tax reform and replacing lax and spendthrift fiscal and monetary policies by exerting fiscal and monetary discipline.
