Advanced Search
MyIDEAS: Login to save this paper or follow this series

What Caused the Recent Boom-And-Bust Cycle in Lithuania? Evidence from a Macromodel with the Financial Sector

Contents:

Author Info

  • Tomas Ramanauskas

    ()
    (Bank of Lithuania)

Registered author(s):

    Abstract

    In this paper we analyse determinants of the recent boom-and-bust cycle of the Lithuanian economy with the help of a medium-sized macroeconometric model that incorporates a functional financial block. Special emphasis is put on the role of credit market conditions during the overheating episode. We quantitatively estimate the impact of credit conditions and externally funded bank lending on macroeconomic developments. There is evidence that easy credit conditions and active credit expansion contributed moderately to real economic growth but significantly added to overheating pressures by pushing up real estate prices, encouraging concentration of labour and capital into procyclical sectors and increasing private sector’s debt burden. During the boom episode buoyant external environment provided strong background for export-led growth, which was later strongly affected by temporary foreign trade collapse at the outset of the economic crisis. Model results also suggest that government’s discretionary fiscal policies may have contributed to economic overheating and severity of the ensuing crisis by not adopting sufficiently prudent fiscal stance during the boom episode. The model confirms that more favourable interest rate environment and accommodating fiscal policies are important for providing a temporary relief for the crisis-stricken economy but deep structural transformation of the economy is needed for the sustainable recovery to take hold.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.lb.lt/wp2011_no_10
    File Function: Full text
    Download Restriction: no

    Bibliographic Info

    Paper provided by Bank of Lithuania in its series Bank of Lithuania Working Paper Series with number 10.

    as in new window
    Length: 51 pages
    Date of creation: 04 Jul 2011
    Date of revision:
    Handle: RePEc:lie:wpaper:10

    Contact details of provider:
    Postal: Bank of Lithuania Gedimino pr. 6, LT-01103 Vilnius, Lithuania
    Phone: 22 40 08
    Fax: 22 15 01
    Email:
    Web page: http://www.lbank.lt/
    More information through EDIRC

    Related research

    Keywords: structural macroeconometric modelling; macrofinancial linkages; economic cycles; credit; banking sector; housing price bubble;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Vetlov, Igor, 2004. "The Lithuanian block of the ESCB multi-country model," BOFIT Discussion Papers 13/2004, Bank of Finland, Institute for Economies in Transition.
    2. Konstantins Benkovskis & Dainis Stikuts, 2006. "Latvia's Macroeconomic Model," Working Papers 2006/02, Latvijas Banka.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:lie:wpaper:10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rasa Pusinskaite).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.