Is Poland at Risk of a Boom-and-Bust Cycle in the Run-Up to Euro Adoption?

53 Pages Posted: 18 Dec 2008

See all articles by Barry Eichengreen

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Katharina Steiner

Oesterreichsiche Nationalbank (OeNB)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2008

Abstract

We ask whether Poland is at risk of the boom-bust problem that has afflicted economies around the time of euro adoption. Our answer, inevitably, is mixed. On the one hand the fact that Poland is an outlier, credit-growth wise, accentuates the danger of a boom if one believes in mean reversion. Our econometrics indicate that the fall in interest rates that will flow from expectations of euro adoption will further feed that boom. On the other hand the fact that interest rates have already converged part way to euro-area levels (and more extensively than in earlier adopters that experienced a sharp fall in rates and a pronounced credit boom), especially in the case of lending to firms, suggests that this shock may be less intense in Poland. And it is certainly conceivable that the same policies and country characteristics (not always visible to the econometrician) that have restrained credit growth in the past may continue to do so in the future. The broader literature also points to two set of factors, the first of which makes the danger of an unsustainable credit boom more immediate, the second of which makes it more remote. In the first category are the continuing limitations of the supervisory framework and the weakness of the finance minister in the budget-making process. In the second are a record of rigorous prudential supervision and the existence of relatively competitive labor markets.

Keywords: euro, Poland

JEL Classification: F0

Suggested Citation

Eichengreen, Barry and Steiner, Katharina, Is Poland at Risk of a Boom-and-Bust Cycle in the Run-Up to Euro Adoption? (October 2008). CEPR Discussion Paper No. DP7027, Available at SSRN: https://ssrn.com/abstract=1311151

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Katharina Steiner

Oesterreichsiche Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna, A-1011
Austria

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