Forced Saving and Repressed Inflation in the Soviet Union, 1986-90: Some Empirical Results

In countries like the former Soviet Union, where wealth is mainly stored in monetary assets, the behavior of the money-income ratio is a poor indicator of the growth of undesired monetary balances (monetary overhang). In those countries a monetary overhang is primarily a wealth overhang, which has to be analyzed by evaluating deviations of actual from desired wealth holdings; this requires an empirical analysis of consumption and saving decisions. In this paper, a consumption function for the Soviet Union is estimated, from which an evaluation of the monetary overhang existing at end-1990 is derived.