IDEAS home Printed from https://ideas.repec.org/a/beo/journl/v55y2010i186p89-114.html
   My bibliography  Save this article

Economic Crisis In The Baltic States: Focusing On Latvia

Author

Listed:
  • Yoji Koyama

Abstract

This paper examines the causes of the economic crisis in new EU member states in Central and Eastern Europe, focusing on the Baltic States, especially Latvia. Thanks to the Single Market of the EU, workers in this country became able to migrate to advanced EU countries, especially the UK, decreasing the unemployment rate and at the same time causing a sharp increase in wages due to a tightened labour market. Banks from Nordic countries came to operate in Latvia and competed for market shares, stirring a consumption boom. In a situation in which people can easily get loans denominated in a foreign currency the monetary policies of the central bank are weakened. The Latvian economy already showed signs of overheating in 2005. However in the spring of 2007 the government turned to restrictive policies, causing a depression at the end of 2007. The Lehman shock dealt the Latvian economy its final blow. Latvia set up the introduction of the Euro in 2013 as an exit strategy. Latvia is in a dilemma: if the country does not devalue its national currency and tries to satisfy the Maastricht criteria soon, it will be obliged to adopt pro-cyclical policies, causing economic stagnation.

Suggested Citation

  • Yoji Koyama, 2010. "Economic Crisis In The Baltic States: Focusing On Latvia," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 55(186), pages 89-114, July – Se.
    • Handle: RePEc:beo:journl:v:55:y:2010:i:186:p:89-114
    as

    Download full text from publisher

    File URL: http://www.ekof.bg.ac.rs/wp-content/uploads/2014/06/186-2-1.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jesmin Rahman, 2008. "Current Account Developments in New Member States of the European Union: Equilibrium, Excess, and EU-Phoria," IMF Working Papers 2008/092, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brizga, Janis & Feng, Kuishuang & Hubacek, Klaus, 2014. "Drivers of greenhouse gas emissions in the Baltic States: A structural decomposition analysis," Ecological Economics, Elsevier, vol. 98(C), pages 22-28.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jan Hanousek & Evžen Kočenda, 2011. "Public Investment and Fiscal Performance in the New EU Member States," Fiscal Studies, Institute for Fiscal Studies, vol. 32(1), pages 43-71, March.
    2. International Monetary Fund, 2009. "Former Yugoslav Republic of Macedonia: Selected Issues," IMF Staff Country Reports 2009/061, International Monetary Fund.
    3. Michele Ca’ Zorzi & Alexander Chudik & Alistair Dieppe, 2012. "And then current accounts (over)adjusted," Empirical Economics, Springer, vol. 43(1), pages 245-270, August.
    4. Dumitru, Ionut, 2008. "O evaluare a sustenabilitatii deficitului de cont curent in Romania [An assessment of the current account sustainability in Romania]," MPRA Paper 18614, University Library of Munich, Germany.
    5. Harkmann, Kersti & Staehr, Karsten, 2021. "Current account drivers and exchange rate regimes in Central and Eastern Europe," Journal of International Money and Finance, Elsevier, vol. 110(C).
    6. Michele Ca' Zorzi & Alexander Chudik & Alistair Dieppe, 2012. "The perils of aggregating foreign variables in panel data models," Globalization Institute Working Papers 111, Federal Reserve Bank of Dallas.
    7. Ca’ Zorzi, Michele & Chudik, Alexander & Dieppe, Alistair, 2012. "Thousands of models, one story: Current account imbalances in the global economy," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1319-1338.
    8. Brankica Pažun & Zlatko Langović & Ana Langovic Milićević, 2016. "Equilibrium Real Exchange Rate Assessment of the Serbian Dinar: The MB approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 76-87, March.
    9. Anastasia Blouchoutzi & Christos Nikas, 2010. "The macroeconomic implications of emigrants' remittances in Romania, Bulgaria and Albania," Post-Communist Economies, Taylor & Francis Journals, vol. 22(4), pages 547-558.
    10. Kersti Harkmann & Karsten Staehr, 2019. "Current account dynamics and exchange rate regimes in Central and Eastern Europe," Bank of Estonia Working Papers wp2018-08, Bank of Estonia, revised 23 Jan 2019.
    11. Zoran Grubišiæ & Sandra Kamenkoviæ & Aleksandar Zdravkoviæ, 2018. "Impact of government balance and exchange rate regime on current account during the economic cycle: evidence from CEE countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(1), pages 309-336.
    12. Comunale, Mariarosaria, 2018. "Current account and real effective exchange rate misalignments in Central Eastern EU countries: An update using the macroeconomic balance approach," Economic Systems, Elsevier, vol. 42(3), pages 414-436.
    13. Moral-Benito, Enrique & Roehn, Oliver, 2016. "The impact of financial regulation on current account balances," European Economic Review, Elsevier, vol. 81(C), pages 148-166.
    14. Jesmin Rahman, 2010. "Absorption Boom and Fiscal Stance: What Lies Ahead in Eastern Europe?," IMF Working Papers 2010/097, International Monetary Fund.
    15. Isadora LAZAR & Madalina Ecaterina ANDREICA, 2013. "Current Account Balance, Private Debt And Euro Area Sovereign Debt Crisis: A Comparison Of North And South," Romanian Journal of Economics, Institute of National Economy, vol. 37(2(46)), pages 40-52, December.
    16. Dumitru, Ionut, 2008. "An assessment of the current account sustainability in Romania," MPRA Paper 18613, University Library of Munich, Germany.
    17. Jordi Prat & Leandro Medina & Mr. Alun H. Thomas, 2010. "Current Account Balance Estimates for Emerging Market Economies," IMF Working Papers 2010/043, International Monetary Fund.
    18. Comunale, Mariarosaria, 2022. "A panel VAR analysis of macro-financial imbalances in the EU," Journal of International Money and Finance, Elsevier, vol. 121(C).
    19. Gehringer, Agnieszka, 2012. "Another look at the determinants of current account imbalances in the European Union: An empirical assessment," University of Göttingen Working Papers in Economics 142, University of Goettingen, Department of Economics.
    20. Herrmann, Sabine & Winkler, Adalbert, 2009. "Real convergence, financial markets, and the current account - Emerging Europe versus emerging Asia," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 100-123, August.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:beo:journl:v:55:y:2010:i:186:p:89-114. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Goran Petrić (email available below). General contact details of provider: https://edirc.repec.org/data/efbeoyu.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.