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Political Credit Cycles: The Case of the Eurozone

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  • Jesús Fernández-Villaverde
  • Luis Garicano
  • Tano Santos

Abstract

We study the mechanisms through which the entry into the euro delayed, rather than advanced, key economic reforms in the eurozone periphery and led to the deterioration of important institutions in these countries. We show that the abandonment of the reform process and the institutional deterioration, in turn, not only reduced their growth prospects but also fed back into financial conditions, prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident. We analyze empirically the interrelation between the financial boom and the reform process in Greece, Spain, Ireland, and Portugal and, by way of contrast, in Germany, a country that did experience a reform process after the creation of the euro.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.27.3.145
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 27 (2013)
Issue (Month): 3 (Summer)
Pages: 145-66

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Handle: RePEc:aea:jecper:v:27:y:2013:i:3:p:145-66

Note: DOI: 10.1257/jep.27.3.145
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References

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  1. Stéphane Bonhomme & Laura Hospido, 2012. "The cycle of earnings inequality: evidence from Spanish social security data," Banco de Espa�a Working Papers 1225, Banco de Espa�a.
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  10. Francisco Torres, 2006. "A Convergência Monetária: Portugal e a União Europeia," Working Papers de Economia (Economics Working Papers) 39, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
  11. Athanasios Vamvakidis, 2007. "External Debt and Economic Reform," IMF Working Papers 07/50, International Monetary Fund.
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  16. repec:iab:iabzaf:v:40:i:1:p:45-64 is not listed on IDEAS
  17. Ernst R. Berndt & Charles R. Hulten, 2007. "Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches," NBER Books, National Bureau of Economic Research, Inc, number bern07-1, May.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. La Fassina: omnia trina perfecta sunt.
    by Alberto Bagnai in Goofynomics on 2014-05-16 23:19:00
  2. Euro, quelli che ‘ci vuole più Europa’
    by Alberto Bagnai in Il Fatto Quotidiano on 2014-05-21 13:17:32
  3. The effect of the Euro on southern European countries
    by Inaki Villanueva in Applied economist on 2013-04-15 20:45:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Reis, Ricardo, 2013. "The Portuguese Slump and Crash and the Euro Crisis," CEPR Discussion Papers 9591, C.E.P.R. Discussion Papers.
  2. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in’t Veld & Lukas Vogel, 2014. "What drives the German current account? And how does it affect other EU member states?," European Economy - Economic Papers 516, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  3. Philip R. Lane, 2013. "Growth and Adjustment Challenge for the Euro Area," The Institute for International Integration Studies Discussion Paper Series iiisdp427, IIIS.
  4. Brigitte Granville & Dominik Nagly, 2013. "Determinants of relative bargaining power in monetary unions," Working Papers 47, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  5. Gozgor, Giray, 2014. "Determinants of domestic credit levels in emerging markets: The role of external factors," Emerging Markets Review, Elsevier, vol. 18(C), pages 1-18.
  6. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.

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