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Financial Crisis, Economic Recovery and Banking Development in Former Soviet Union Economies

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  • Haizhou Huang
  • Dalia Marin
  • Chenggang Xu

Abstract

This paper explains both the onset of the financial crisis in 1998 and the striking economic recovery afterwards in Russia and other Former Soviet Union (FSU) economies. Before the crisis banks do not lend to the real sector of the economy and firms use non-bank finance, including trade credits and barter trade, to finance production. The banking failure arises due to the coexistence of adverse selection in a lemons credit market jointly with high government borrowing. The collapse of the treasury bills market in the financial crisis of August 1998 triggers a change in banks lending behavior. A strong economic recovery follows which provides initial conditions for banking development.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2003/wp-cesifo-2003-02/cesifo_wp860.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 860.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_860

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  1. Enrico Perotti, 2001. "Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints," William Davidson Institute Working Papers Series 379, William Davidson Institute at the University of Michigan.
  2. Berglöf, Erik & Bolton, Patrick, 2003. "The Great Divide and Beyond - Financial Architecture in Transition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3476, C.E.P.R. Discussion Papers.
  3. Romain Ranciere & Norman Loayza, 2004. "Financial Development, Financial Fragility and Growth," Working Papers 192, Barcelona Graduate School of Economics.
  4. Blanchard, Olivier & Kremer, Michael R., 1997. "Disorganization," Scholarly Articles 3659691, Harvard University Department of Economics.
  5. Dalia Marin & Daniel Kaufmann & Bogdan Gorochowskij, 2000. "Barter in Transition Economies: Competing Explanations Confront Ukranian Data," William Davidson Institute Working Papers Series 287, William Davidson Institute at the University of Michigan.
  6. Dalia Marin & Monika Schnitzer, 2002. "Contracts in Trade and Transition: The Resurgence of Barter," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262133997, December.
  7. Dalia Marin & Monika Schnitzer, 2000. "Disorganization and Financial Collapse," CESifo Working Paper Series 339, CESifo Group Munich.
  8. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  9. Prakash Loungani & Paolo Mauro, 2000. "Capital Flight from Russia," IMF Policy Discussion Papers 00/6, International Monetary Fund.
  10. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
  11. Gelfer, Stanislav & Perotti, Enrico C, 1999. "Red Barons or Robber Barons? Governance and Financing in Russian FIG," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2204, C.E.P.R. Discussion Papers.
  12. Guillermo Calvo & Fabrizio Coricelli, 1992. "Output Collapse in Eastern Europe," IMF Working Papers 92/64, International Monetary Fund.
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Cited by:
  1. José Noguera & Susan J. Linz, 2005. "Barter, Credit, and Welfare: A theoretical inquiry into the barter phenomenon in Russia," William Davidson Institute Working Papers Series wp757, William Davidson Institute at the University of Michigan.
  2. Khilji, Bashir Ahmad & Farrukh, Muhammad Umer & Iqbal, Mammona & Hameed, Shahzad, 2010. "The Impact of Recent Financial Recession on the Banking sector of Pakistan," MPRA Paper 30558, University Library of Munich, Germany, revised 05 Jan 2011.

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