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Poland on the road to the euro: How serious is the risk of boom-bust cycles after the euro adoption? An empirical analysis

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  • Agnieszka Stążka-Gawrysiak

    (National Bank of Poland, Economic Institute; Warsaw School of Economics)

Abstract

The goal of this paper is, firstly, to determine which structural characteristics of an economy make it more (or less) prone to macroeconomic booms and busts and, secondly, to empirically assess the risk of a boom-bust cycle in Poland after the euro adoption. We start from identifying booms and busts in private consumption and investment in fourteen “old” EU member states and then we seek to explain the identified boom and bust series using panel probit and pooled probit models. We then use the estimated equations to assess the probability of booms and busts in Poland over the period 2004 to 2009. Our results suggest that credit developments have been the most important driving force of booms and busts in EU-14. The relevance of international capital flows as a boom-bust transmission channel and of the cyclical heterogeneity of countries which undergo a process of monetary integration is also confirmed. We also find evidence that the fiscal channel boils down to a crowding-out effect: a reduction in the general government expenditure “makes room” for a boom in the private expenditure, and the reverse holds for busts. In turn, our results for Poland are inconclusive, which probably means that the models estimated for EU-14 are not adequate to predict the probabilities of booms and busts in this country.

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Bibliographic Info

Paper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 103.

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Length: 50
Date of creation: 2011
Date of revision:
Handle: RePEc:nbp:nbpmis:103

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Keywords: Booms and busts; Poland; EMU enlargement; panel data analysis; probit models;

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References

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  1. International Monetary Fund, 2005. "Adopting the Euro in Central Europe," IMF Occasional Papers 234, International Monetary Fund.
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Cited by:
  1. Ponomarenko, Alexey, 2012. "Early warning indicators of asset price boom/bust cycles in emerging markets," BOFIT Discussion Papers 22/2012, Bank of Finland, Institute for Economies in Transition.

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