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Financial Crisis, Economic Recovery and Banking Development in Former Soviet Union Economies

  • Huang, Haizhou
  • Marin, Dalia
  • Xu, Cheng-Gang

This Paper explains both the onset of the financial crisis in 1998 and the striking economic recovery afterwards in Russia and other Former Soviet Union (FSU) economies. Before the crisis banks do not lend to the real sector of the economy, and firms use non-bank finance - including trade credits and barter trade - to finance production. The banking failure arises due to the coexistence of adverse selection in a lemons credit market jointly with high government borrowing. The collapse of the treasury bills market in the financial crisis of August 1998 triggers a change in banks' lending behaviour. As a result output recovers which provides initial conditions for banking development.

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File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3794
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3794.

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Date of creation: Feb 2003
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Handle: RePEc:cpr:ceprdp:3794
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  1. Ratna Sahay & Deepak Mishra & Poonam Gupta, 2003. "Output Response to Currency Crises," IMF Working Papers 03/230, International Monetary Fund.
  2. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  3. Dalia Marin & Daniel Kaufmann & Bogdan Gorochowskij, 2000. "Barter in Transition Economies: Competing Explanations Confront Ukranian Data," William Davidson Institute Working Papers Series 287, William Davidson Institute at the University of Michigan.
  4. Blanchard, Olivier & Kremer, Michael R., 1997. "Disorganization," Scholarly Articles 3659691, Harvard University Department of Economics.
  5. Enrico Perotti, 2001. "Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints," William Davidson Institute Working Papers Series 379, William Davidson Institute at the University of Michigan.
  6. Guillermo Calvo & Fabrizio Coricelli, 1992. "Output Collapse in Eastern Europe: The Role of Credit," IMF Working Papers 92/64, International Monetary Fund.
  7. Dalia Marin & Monika Schnitzer, 1999. "Disorganization and Financial Collapse," William Davidson Institute Working Papers Series 285, William Davidson Institute at the University of Michigan.
  8. Erik Berglof & Patrick Bolton, 2001. "The Great Divide and Beyond: Financial Architecture in Transition," William Davidson Institute Working Papers Series 414, William Davidson Institute at the University of Michigan.
  9. Norman Loayza & Romain Rancière, 2004. "Financial development, financial fragility and growth," Economics Working Papers 855, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Gelfer, Stanislav & Perotti, Enrico C, 1999. "Red Barons or Robber Barons? Governance and Financing in Russian FIG," CEPR Discussion Papers 2204, C.E.P.R. Discussion Papers.
  11. Dalia Marin & Monika Schnitzer, 2002. "Contracts in Trade and Transition: The Resurgence of Barter," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262133997, June.
  12. Prakash Loungani & Paolo Mauro, 2000. "Capital Flight from Russia," IMF Policy Discussion Papers 00/6, International Monetary Fund.
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