## Output Collapse in Eastern Europe: The Role of Credit

_IMF Working Papers, August 1, 1992_

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**Canonical URL:** [Output Collapse in Eastern Europe: The Role of Credit](https://www.imf.org/en/publications/wp/issues/2016/12/30/output-collapse-in-eastern-europe-the-role-of-credit-1825)

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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

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### 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.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/output-collapse-in-eastern-europe-the-role-of-credit-1825_