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Political Credit Cycles: The Case of the Euro Zone

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  • Fernández-Villaverde, Jesús
  • Garicano, Luis
  • Santos, Tano

Abstract

We study the mechanisms through which the adoption of the Euro delayed, rather than advanced, economic reforms in the Euro zone 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9404.

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Date of creation: Mar 2013
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Handle: RePEc:cpr:ceprdp:9404

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Keywords: bubbles; Euro crisis; Financial crisis; political economy;

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References

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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. 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.
  2. Philip R. Lane, 2013. "Growth and Adjustment Challenge for the Euro Area," The Institute for International Integration Studies Discussion Paper Series iiisdp427, IIIS.
  3. In 'T Veld, Jan & Kollmann, Robert & Ratto, Marco & Roeger, Werner & Vogel, Lukas, 2014. "What drives the German current account? And how does it affect other EU member states?," CEPR Discussion Papers 9933, C.E.P.R. Discussion Papers.
  4. 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.
  5. Ricardo Reis, 2013. "The Portugese Slump and Crash and the Euro Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 143-210.
  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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