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

Author/Editor:

International Monetary Fund

Publication Date:

May 1, 2010

Electronic Access:

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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.

Series:

Working Paper No. 10/130

Subject:

English

Publication Date:

May 1, 2010

ISBN/ISSN:

9781455201136/1018-5941

Stock No:

WPIEA2010130

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

45

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