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

46 Pages Posted: 4 Jun 2010

See all articles by Bas Berend Bakker

Bas Berend Bakker

International Monetary Fund (IMF)

Anne-Marie Gulde

International Monetary Fund (IMF)

Date Written: May 2010

Abstract

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.

Keywords: Eastern Europe, Capital flows, Credit demand, Credit expansion, Business cycles, Economic reforms, Global Financial Crisis 2008-2009

Suggested Citation

Bakker, Bas Berend and Gulde, Anne-Marie, The Credit Boom in the EU New Member States: Bad Luck or Bad Policies? (May 2010). IMF Working Paper No. 10/130, Available at SSRN: https://ssrn.com/abstract=1620249

Bas Berend Bakker (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Anne-Marie Gulde

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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