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The Real Effect of Financial Crises in the European Transition Economies

  • Davide Furceri

    (OCDE - Organisation de coopération et de développement économiques - OCDE)

  • Aleksandra Zdzienicka-Durand

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

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 HAL in its series Post-Print with number halshs-00431044.

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Date of creation: 2011
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Publication status: Published, Economics of Transition, 2011, 19, 1, pp. 1-25
Handle: RePEc:hal:journl:halshs-00431044
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00431044/en/
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