Policy modeling under fixed and flexible price regimes: SAM-CGE transitional applications to Poland and Hungary

The differences in the simulated behavior of the economy under centrally planned and market regimes are illustrated. The results of the social accounting matrices (SAM) model are interpreted as describing stylized centrally planned economy and the results of the computable general equilibrium (CGE) model are treated as reflecting ideal market mechanisms. However, the application of SAM and CGE models to any one country is not meant to replicate a centrally planned and a free-market economy for that country. In the centrally planned economy simulation case, each type of exogenous shock leads to smooth adjustments of other magnitudes. In the case of free-market economy simulations, the economy adjusts to exogenous shocks by both quantity and price movements. The SAM-CGE can be seen as the opposite poles between the central planning model and free-market model. Applicability of SAM-CGE to the modeling of economies in transition from a pure centrally planned economy to a pure free-market economy is examined. Two countries serve as case studies: Poland and Hungary.