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

Author/Editor: Bakker, Bas Berend | Gulde, Anne Marie
Authorized for Distribution: May 1, 2010
Electronic Access: Free Full Text (PDF file size is 1,316KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
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Series: Working Paper No. 10/130
Subject(s): Eastern Europe | Capital flows | Credit demand | Credit expansion | Business cycles | Economic reforms | Global Financial Crisis 2008-2009
Author's keyword(s): Credit boom | capital flows | sudden stop | banks | Eastern Europe | global financial crisis
 
English  
    Published:   May 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010130   Pages:   45
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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