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Finance and Convergence

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Author Info

  • Philip Schellekens
  • Rudolfs Bems

Abstract

This paper singles out the key short-term risks and medium-term challenges related to finance and convergence in emerging Europe. With the help of a general equilibrium theoretical framework, the paper identifies pragmatic directions for policymakers. While the "speed limits" to capital inflows may be hard to determine, the costs of breaking them are likely substantial. To ensure "safe driving," policymakers ought to build buffers and reduce vulnerabilities. Equally important, yet often overlooked, is the need to prepare for "the curve ahead"-the reversal of external current account imbalances. To avoid painful adjustments, flexible factor markets and strong financial systems will be more important than ever.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/244.

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Length: 41
Date of creation: 01 Nov 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/244

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Related research

Keywords: Current account balances; Financial systems; Capital flows; Emerging markets; Financial risk; capital inflows; capital markets; nontradable goods; current account deficits; current account deficit; open economy; factor markets; capital stock; current account balance; credit constraint; tradable goods; foreign capital; elasticity of substitution; perfect competition; risk capital; income convergence; capital good; excess demand; foreign capital inflows; risk aversion; intermediate goods; access to capital markets; capital accumulation; relative price of capital; political economy; domestic capital; domestic savings; equilibrium model; capital controls; domestic production; private capital; exchange rate fluctuations; exchange rate regime; domestic consumption; world market; trade deficits; closed economy; securities markets; investment goods; domestic demand; securitization;

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Citations

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Cited by:
  1. Ruben Atoyan, 2010. "Beyond the crisis: revisiting emerging Europe’s growth model," Financial Theory and Practice, Institute of Public Finance, vol. 34(4), pages 329-356.
  2. Mariam Camarero & Josep Lluís Carrion-i-Silvestre & Cecilio Tamarit, 2010. "External imbalances in a monetary union. Does the Lawson doctrine apply to Europe?," Working Papers 1006, Department of Applied Economics II, Universidad de Valencia.
  3. Jarko Fidrmuc & Reiner Martin, 2011. "FDI, Trade and Growth in CESEE Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 70-89,112-1.
  4. Rudolfs Bems & Philip Schellekens, 2008. "Macroeconomics of Migration in New Member States," IMF Working Papers 08/264, International Monetary Fund.
  5. Jesmin Rahman, 2008. "Current Account Developments in New Member States of the European Union," IMF Working Papers 08/92, International Monetary Fund.
  6. Julia Kiraly & Judit Antal & Marton Nagy & Viktor Szabo, 2008. "Retail credit expansion and external finance in Hungary: lessons from the recent past (1998–2007)," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 221-233 Bank for International Settlements.
  7. Ca' Zorzi, Michele & Rubaszek, Michał, 2008. "On the empirical evidence of the intertemporal current account model for the euro area countries," Working Paper Series 0895, European Central Bank.

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