We would like to thank an anonymous referee, Graciela Kaminski and other participants at the ESRC Development Economics Conference, Manchester (2010). The views expressed in this article are those of the authors and do not necessarily represent those of the OECD or its member countries.
The real effect of financial crises in the European transition economies1
Version of Record online: 4 AUG 2010
© 2010 The Authors. Economics of Transition © 2010 The European Bank for Reconstruction and Development
Economics of Transition
Volume 19, Issue 1, pages 1–25, January 2011
How to Cite
Furceri, D. and Zdzienicka, A. (2011), The real effect of financial crises in the European transition economies. Economics of Transition, 19: 1–25. doi: 10.1111/j.1468-0351.2010.00395.x
- Issue online: 8 DEC 2010
- Version of Record online: 4 AUG 2010
- Received: October 6, 2009; Acceptance: February 26, 2010
- Output growth;
- financial crisis;
The aim of this work is to assess the impact of financial crises on output for 11 European transition economies (CEECs). The results suggest that financial crises have a significant and permanent effect, lowering long-term output by about 12–17 percent. The effect is larger in smaller countries in which the banking sector presented more important financial disequilibria. We also found that fiscal policy has been the most efficient tool in dealing with the crises, whereas the effect of monetary policy has been rather modest. Flexible exchange rates are found to attenuate the impact of the crises in the short and medium term, but to amplify the effect in the long run. International Monetary Fund support is found to moderate the effect in the long run. Finally, the effect in the CEECs is considerably larger than in the EU advanced economies.