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The Credit Boom in the EU New Member States; Bad Luck or Bad Policies?

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  • International Monetary Fund

Abstract

In the past decade, most of the EU New Member States experienced a severe credit-boom bust cycle. This paper argues that the credit boom-bust cycle was to a large extent the result of factors external to the region (“bad luck”). Rapid credit growth followed from a high liquidity in global markets and the particular attractiveness of “new Europe” for capital flows, while the end of the credit cycle was brought about by a global crisis. However, the fact that some countries managed to avoid most of the excesses, including asset price bubbles and foreign exchange lending, suggests that policies and policy failures (“bad policies”)—in particular overly expansionary macroeconomic settings and excessively optimistic views on prudential risks—also have played a critical role.

Suggested Citation

  • International Monetary Fund, 2010. "The Credit Boom in the EU New Member States; Bad Luck or Bad Policies?," IMF Working Papers 10/130, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/130
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    Cited by:

    1. Imran, Kashif & Nishat, Mohammed, 2013. "Determinants of bank credit in Pakistan: A supply side approach," Economic Modelling, Elsevier, vol. 35(C), pages 384-390.
    2. Anders åslund, 2012. "Is the catching- up process in Central and Eastern Europe sustainable?," Chapters,in: European Integration in a Global Economy, chapter 13, pages 129-146 Edward Elgar Publishing.
    3. Furceri, Davide & Guichard, Stéphanie & Rusticelli, Elena, 2012. "The effect of episodes of large capital inflows on domestic credit," The North American Journal of Economics and Finance, Elsevier, vol. 23(3), pages 325-344.
    4. Varlik Serdar & Berument M. Hakan, 2016. "Credit channel and capital flows: a macroprudential policy tool? Evidence from Turkey," The B.E. Journal of Macroeconomics, De Gruyter, vol. 16(1), pages 145-170, January.
    5. Gozgor, Giray, 2014. "Determinants of domestic credit levels in emerging markets: The role of external factors," Emerging Markets Review, Elsevier, vol. 18(C), pages 1-18.
    6. Zsoka Koczan, 2015. "Fiscal Deficit and Public Debt in the Western Balkans; 15 Years of Economic Transition," IMF Working Papers 15/172, International Monetary Fund.
    7. Greta Marianna & Lewandowski Krzysztof, 2015. "The Impact Of The Global Financial And Economic Crisis Convergence Process In OECD Countries," Comparative Economic Research, De Gruyter Open, vol. 18(1), pages 81-96, March.
    8. Mahvash S. Qureshi & Jonathan D. Ostry & Atish R. Ghosh & Marcos Chamon, 2011. "Managing Capital Inflows: The Role of Capital Controls and Prudential Policies," NBER Chapters,in: Global Financial Crisis National Bureau of Economic Research, Inc.
    9. Krzysztof Czerkas, 2016. "The foreign currency mortgage loans in the Polish banking sector and its possible macroeconomic and political consequences," Lodz Economics Working Papers 8/2016, University of Lodz, Faculty of Economics and Sociology.
    10. Karsten Staehr, 2016. "Exchange Rate Policies in the Baltic States: From Extreme Inflation to Euro Membership," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 16(4), pages 09-18, January.
    11. Jan Babecky & Ales Bulir & Katerina Smidkova, 2012. "Sustainable Real Exchange Rates in the New EU Member States: What Did the Great Recession Change?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(3), pages 226-251, July.
    12. International Monetary Fund, 2014. "Qatar; Selected Issues," IMF Staff Country Reports 14/109, International Monetary Fund.
    13. Alka Obadić & Tomislav Globan & Ozana Nadoveza, 2014. "Contradicting the Twin Deficits Hypothesis: The Role of Tax Revenues Composition," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(6), pages 653-667, December.
    14. Greetje Everaert & Natasha X Che & Nan Geng & Bertrand Gruss & Gregorio Impavido & Yinqiu Lu & Christian Saborowski & Jérôme Vandenbussche & Li Zeng, 2015. "Does Supply or Demand Drive the Credit Cycle? Evidence from Central, Eastern, and Southeastern Europe," IMF Working Papers 15/15, International Monetary Fund.
    15. repec:taf:ceasxx:v:65:y:2013:i:3:p:528-547 is not listed on IDEAS
    16. Mara Pirovano, 2013. "Household and firm leverage, capital flows and monetary policy in a small open economy," Working Paper Research 246, National Bank of Belgium.
    17. Yuko Kinoshita, 2011. "Sectoral Composition of Foreign Direct Investment and External Vulnerability in Eastern Europe," IMF Working Papers 11/123, International Monetary Fund.
    18. Markus Eller & Florian Huber & Helene Schuberth, 2016. "Understanding the drivers of capital flows into the CESEE countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 79-104.
    19. Bas B Bakker & Leslie Lipschitz, 2011. "Monetary Policy Challenges in the CESEE Region: Architecture for an Earthquake Zone," Chapters,in: Post-Crisis Growth and Integration in Europe, chapter 11 Edward Elgar Publishing.
    20. Kadri Männasoo & Jaanika Meriküll, 2015. "The impact of firm financing constraints on R&D over the business cycle," Working Papers 348, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    21. Anders Aslund & Witold Or³owski, 2014. "The Polish Transition in a Comparative Perspective / Polska transformacja ustrojowa w perspektywie porównawczej," mBank - CASE Seminar Proceedings 133, CASE-Center for Social and Economic Research.
    22. Ostry, Jonathan D. & Ghosh, Atish R. & Chamon, Marcos & Qureshi, Mahvash S., 2012. "Tools for managing financial-stability risks from capital inflows," Journal of International Economics, Elsevier, vol. 88(2), pages 407-421.
    23. repec:pal:compes:v:59:y:2017:i:4:d:10.1057_s41294-017-0034-4 is not listed on IDEAS
    24. Puspa D. Amri & Greg M. Richey & Thomas D. Willett, 2016. "Capital Surges and Credit Booms: How Tight is the Relationship?," Open Economies Review, Springer, vol. 27(4), pages 637-670, September.

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