transitional economy

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An economy in the process of major changes in its mode of economic organization. This may be from a centrally planned economy to a market-based economy, as in the former Soviet Union and many countries of Eastern Europe. It may also be from a highly dirigiste policy regime to a more liberalized one, as in many developing countries. Transitional economies face special microeconomic difficulties, as they may need to reform their institutions, for example by creating clear property laws and introducing bankruptcy procedures. They also face special macroeconomic problems, as they may need to reform their tax systems, and their monetary authorities may lack relevant experience on which to base their policies. Many transitional economies have experienced slumps in real output and bursts of inflation in the early stages of transition.

Subjects: Economics.

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