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The Credit Boom in the EU New Member States

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  • International Monetary Fund
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    Abstract

    In the past decade, most of the EU New Member States experienced a severe credit-boom bust cycle. This paper argues that the credit boom-bust cycle was to a large extent the result of factors external to the region (“bad luckâ€). Rapid credit growth followed from a high liquidity in global markets and the particular attractiveness of “new Europe†for capital flows, while the end of the credit cycle was brought about by a global crisis. However, the fact that some countries managed to avoid most of the excesses, including asset price bubbles and foreign exchange lending, suggests that policies and policy failures (“bad policiesâ€)—in particular overly expansionary macroeconomic settings and excessively optimistic views on prudential risks—also have played a critical role.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/130.

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    Length: 45
    Date of creation: 01 May 2010
    Date of revision:
    Handle: RePEc:imf:imfwpa:10/130

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    Related research

    Keywords: Capital flows; Banks; Eastern Europe; Credit demand; Credit expansion; Economic reforms; capital inflows; exchange rate; subsidiaries; foreign exchange; exchange rates; fixed exchange rate; exchange rate regimes; private capital flows; exchange rate regime; fixed exchange rates; fixed exchange rate countries; net capital; current account deficits; exchange rate policy; currency boards; floating exchange rates; nominal exchange rate; exchange rate changes; private capital; exchange risks; foreign exchange risks; foreign exchange risk; foreign capital; floating exchange rate; exchange rate appreciation; exchange risk; capital account crises; capital controls; capital accounts; fixed exchange rate regimes; capital outflows; risk aversion; capital movements; exchange rate level; capital flow; exchange rate change; capital leaves; exchange rate risk; domestic credit; limited exchange rate flexibility; current account deficit; exchange rate flexibility; short-term capital; liquidity crisis; flexible exchange rate; flexible exchange rate regimes; mature markets;

    This paper has been announced in the following NEP Reports:

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    Cited by:
    1. Jan Babecky & Ales Bulir & Katerina Smidkova, 2011. "Sustainable Real Exchange Rates in the New EU Member States: What Did the Great Recession Change?," Working Papers 2011/01, Czech National Bank, Research Department.
    2. Mahvash S. Qureshi & Jonathan D. Ostry & Atish R. Ghosh & Marcos Chamon, 2011. "Managing Capital Inflows: The Role of Capital Controls and Prudential Policies," NBER Working Papers 17363, National Bureau of Economic Research, Inc.
    3. Ostry, Jonathan D. & Ghosh, Atish R. & Chamon, Marcos & Qureshi, Mahvash S., 2012. "Tools for managing financial-stability risks from capital inflows," Journal of International Economics, Elsevier, vol. 88(2), pages 407-421.
    4. Furceri, Davide & Guichard, Stéphanie & Rusticelli, Elena, 2012. "The effect of episodes of large capital inflows on domestic credit," The North American Journal of Economics and Finance, Elsevier, vol. 23(3), pages 325-344.
    5. Yuko Kinoshita, 2011. "Sectoral Composition of Foreign Direct Investment and External Vulnerability in Eastern Europe," IMF Working Papers 11/123, International Monetary Fund.
    6. 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.
    7. Mara Pirovano, 2013. "Household and firm leverage, capital flows and monetary policy in a small open economy," Working Paper Research 246, National Bank of Belgium.
    8. Imran, Kashif & Nishat, Mohammed, 2013. "Determinants of bank credit in Pakistan: A supply side approach," Economic Modelling, Elsevier, vol. 35(C), pages 384-390.

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