Output Collapse in Eastern Europe: The Role of Credit
IMF Working Papers, August 1, 1992
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Bibliographic details
- Authors: Guillermo Calvo, Fabrizio Coricelli
- Published: August 1, 1992
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451848472.001
Summary findings
- Real bank credit in Eastern European countries after their recent stabilization programs fell sharply in all sampled countries except Hungary.
- The hypothesis that output contraction may be partly due to credit contraction cannot be ruled out.
- The hypothesis is empirically tested on a sample of 85 branches of industry in Poland.
- The paper analyzes both the present value perspective and the liquidity perspective as interpretations of the observed fall in real bank credit.
Evidence and methodology
- Empirical test: sample of 85 branches of industry in Poland.
- Comparative evidence: cross-country patterns showing sharp falls in real bank credit after stabilization programs, with Hungary as the notable exception.
- Analytical perspectives considered:
- Present value perspective (interpreting credit contraction as a response to changed intertemporal fundamentals).
- Liquidity perspective (interpreting credit contraction as a binding liquidity constraint affecting production).
Interpretation and substantive analysis
- The observed sharp fall in real bank credit is evaluated under two lenses:
- Present value perspective: credit contraction may reflect revised expectations about future income streams and repayment capacity.
- Liquidity perspective: credit contraction may create or exacerbate liquidity shortages that directly impede output.
- The authors conclude that a causal link from credit contraction to output decline is plausible and empirically consistent with the Poland branch-level tests; it cannot be dismissed on the available evidence.
Policy implications and recommendations
- Because a liquidity crunch in post-socialist economies can plausibly contribute to output collapse, policy options should focus on attenuating liquidity constraints faced by enterprises.
- Relevant policy directions analyzed include measures to alleviate enterprise liquidity shortages and restore effective functioning of credit markets (specific policy instruments and implementation details are discussed in the paper).
Publication and archival note
- Authors: Guillermo Calvo, Fabrizio Coricelli.
- Date: August 1, 1992.
- Empirical scope: analysis includes a sample of 85 branches of industry in Poland.
IMF Working Paper by Guillermo Calvo and Fabrizio Coricelli, "Output Collapse in Eastern Europe: The Role of Credit", August 1, 1992.