Financial Crisis, Economic Recovery and Banking Development in Former Soviet Union Economies
International Monetary Fund (IMF)
Ludwig-Maximilians-Universität Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)
University of Hong Kong
CEPR Discussion Paper No. 3794
This Paper explains both the onset of the financial crisis in 1998 and the striking economic recovery afterwards in Russia and other Former Soviet Union (FSU) economies. Before the crisis banks do not lend to the real sector of the economy, and firms use non-bank finance - including trade credits and barter trade - to finance production. The banking failure arises due to the coexistence of adverse selection in a lemons credit market jointly with high government borrowing. The collapse of the treasury bills market in the financial crisis of August 1998 triggers a change in banks' lending behaviour. As a result output recovers which provides initial conditions for banking development.
Number of Pages in PDF File: 42
Keywords: Banking development, institutional trap, non-banking finance
JEL Classification: D82, G21, G30, O16, P34working papers series
Date posted: April 15, 2003
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