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The Real Effect of Financial Crises in the European Transition Economies

  • Davide Furceri


    (OECD and University of Palermo)

  • Aleksandra Zdzienicka


    (GATE-CNRS/ENS LSH, University of Lyon, France)

The aim of this work is to assess the impact of financial crises on output for 11 European transition economies (CEECs). The results suggest that financial crises have a significant and permanent effect, lowering long-term output by about 17 percent. The effect is more important in smaller countries, with relative higher dependence on external financing, and in which the banking sector noticed more important financial disequilibria. We also found that fiscal policy measures have been the most efficient tools in dealing with the crises, while the role of monetary policy instruments has been rather blinded. Exchange rate resulted to be more a propagator than a crises absorber, while the IMF credit has been found to have positive (but not significant) impact on growth performance. Finally, the effect for the CEECs is much bigger than in the EU advanced economies, for which we found that financial crises lowers long-term output only by 2 percent.

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Paper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 0920.

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Length: 34 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:gat:wpaper:0920
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