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

May 1, 2010

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Format: Chicago

The Credit Boom in the EU New Member States: Bad Luck or Bad Policies?, (USA: International Monetary Fund, 2010) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Capital inflows, Conventional peg, Credit, Credit booms, Exchange rate arrangements

Keywords: Credit boom, Credit growth, Foreign exchange, Nominal exchange rate, Parent bank, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/130
Stock No:

WPIEA2010130
ISBN:

9781455201136
ISSN:

1018-5941

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