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

European Financial Linkages: A New Look At Imbalances

“…This was in line with theoretical predictions and seen as contradicting Feldstein and Horioka (1980) analysis that levels of savings and investment were very correlated as well as Lucas ' (1990) observation that capital did not flow from "rich to poor countries". Europe was, on the contrary, confirming the benefits of financial integration (see for instance Blanchard and Giavazzi (2002), Abiad, Leigh and Mody (2007), Schmidtz and von Hagen (2009), and also Bakker and Gulde (2010) for a more extensive review of the literature on flows to Emerging European countries).…”

IMF Research Bulletin, March 2012

“…Most notably, in the crisis-hit Eastern Europe, FDI plunged as sharply as other short-term capital flowsthough to a lesser extent-and three years after the crisis, FDI has yet to recover to the pre-crisis level. The reversal of capital flows was particularly pronounced in the Baltics and Southeastern Europe where the countries received sizable FDI in the financial sector and experienced rapid credit growth during the boom period (Bakker and Gulde, 2010). FDI volatility in the global financial crisis is explained by pre-crisis differences in the sectoral composition of FDI rather than the aggregate FDI.…”

Determinants of Bank Credit in Emerging Market Economies

“…Takáts (2010) concluded that supply shock was the main determinant of slowdown in crossborder lending to emerging markets during the crisis. Bakker and Gulde (2010) found that external factors (bad luck) were the main reason for credit booms and busts in new EU members. Aisen and Franken (2010) documented that pre-crisis boom and slowdown in partner countries were the main determinants of credit growth during the crisis.…”