Why transition economies did worse than others in 2008-09 recession?
While developing countries as a group did better than developed countries in 2008-09 recession, transition economies – former communist countries – experienced the largest reduction of output. Out of 42 countries that experienced negative growth in 2007-09, 13 were transition economies. In fact, 4 out of 5 most affected economies were former communist countries (Latvia, Estonia, Ukraine, Lithuania). The hypothesis is that these transition countries (1) suffered more than the others from the sudden outflow of capital and (2) did not manage this outflow particularly well. The rule of thumb was that large outflows of capital, especially coupled with negative trade shocks, suppressed economic activity. But if the shocks were relatively small (up to 3% of GDP change in trade and capital account from Q2 2008 to an average of subsequent 3 quarters), it was possible to mitigate them through devaluation (not allowing foreign exchange reserves to drop by the same amount). If the shocks were large, even devaluation did not allow to avoid output fall.
|Date of creation:||Mar 2011|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vladimir Popov, 2011.
"To devaluate or not to devalue? How East European countries responded to the outflow of capital in 1997-99 and in 2008-09,"
w0154, Center for Economic and Financial Research (CEFIR).
- Popov, Vladimir, 2010. "To devalue or not to devalue? How East European countries responded to the outflow of capital in 1997-99 and in 2008-09," MPRA Paper 28112, University Library of Munich, Germany.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:32388. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.