Vulnerabilities in Central and Eastern Europe: Credit Growth

GATE Working Paper No. 09-12

30 Pages Posted: 17 May 2009 Last revised: 15 Apr 2011

Date Written: May 1, 2009

Abstract

In this work, we try to analyze the recent credit development in 11 Central and Eastern European countries and estimate the credit-to-GDP ratio equilibrium level using filtering methods and dynamic panel estimations. Our estimation findings corroborate previous fears about the rapid credit growth in the CEECs. Indeed, in many cases the credit expansion exceeds the level justified by their fundamentals or financial development. Under normal conditions, this rapid growth and even "overshooting" of banking credit could be considered as an adjustment to its long-term equilibrium level. However, in the actual crisis situation, this excessive credit growth can reinforce other existing disequilibria and lead to an increase in the financial vulnerability of these countries.

Keywords: Bank Credit Growth, Dynamic Panel, CEECs

JEL Classification: C2, G21

Suggested Citation

Zdzienicka, Aleksandra, Vulnerabilities in Central and Eastern Europe: Credit Growth (May 1, 2009). GATE Working Paper No. 09-12, Available at SSRN: https://ssrn.com/abstract=1405326 or http://dx.doi.org/10.2139/ssrn.1405326

Aleksandra Zdzienicka (Contact Author)

International Monetary Fund (IMF) ( email )

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

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