Understanding the Crisis in Emerging Europe

Abstract

Emerging Europe suffered larger output declines during 2008-09 than any other region in the world. However, some countries experienced much smaller declines than others; major balance-ofpayments crises and banking collapses were avoided; and economic policy reactions stayed well clear of populist and confiscatory measures experienced in previous crises. This paper argues that this can be attributed to European economic and political integration. It shows that foreign bank ownership was a mitigating factor in the output decline, and that more than half of the crosscountry variation in output decline can be explained by a small group of macroeconomic vulnerabilities.

Was Unofficial Dollarisation/Euroisation an Amplifier of the ‘Great Recession’ of 2007–2009 in Emerging Economies?

“…Berglöf et al (2009) also find evidence that pre-crisis credit booms, high external debt and hard pegs, all predicted larger output declines during the crisis, which is further substantiated by Berkmen et al (2010) and the IMF (2010). Berkmen et al (2010) find that countries with more leveraged domestic financial sectors and faster credit growth tended to suffer larger downward revisions to their growth outlooks.…”

“…Factors that have been highlighted as playing an important role in explaining why certain countries were hit by the crisis harder than others include fast pre-crisis credit growth, large current account deficits, trade openness, business friendliness (i.e. the extent of market regulation), the international openness of the banking sector and the level of GDP per capita (see, in particular, Lane and Milesi-Ferretti, 2010;Blanchard et al, 2010;Berglöf et al, 2009;Giannone et al, 2010;Rose and Spiegel, 2009a, 2009b, 2011.…”

The effects of the subprime crisis on the Latin American financial markets: An empirical assessment

“…Recent studies have looked at this issue during the subprime crisis (Frank et al (2008), Berglof et al (2009), Gonzalez-Hermilloso and Hesse (2009), Rose and Spiegel (2009)). In terms of model specification, many of them rely on VAR models, multivariate GARCH models, or time-varying common factor models.…”

The EU Factor in Fat Times and in Lean: Did the EU Amplify the Boom and Soften the Bust?

“…The bust made it no longer plausible that CEE states were on a simple linear trajectory to catch up with the EU‐15 (Landesmann, ; Farkas, ; Epstein, ). Moreover, across the region, there was a clear relationship between the size of pre‐crisis credit booms and the size of the resulting contractions (Bakker and Klinger, , p. 51; Berglöf et al ., ). The boom and bust were clearly correlated.…”