Finance and Convergence: What’s Ahead for Emerging Europe?

November 12, 2007

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Philip Schellekens, and Rudolfs Bems. Finance and Convergence: What’s Ahead for Emerging Europe?, (USA: International Monetary Fund, 2007) accessed December 3, 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

This paper singles out the key short-term risks and medium-term challenges related to finance and convergence in emerging Europe. With the help of a general equilibrium theoretical framework, the paper identifies pragmatic directions for policymakers. While the "speed limits" to capital inflows may be hard to determine, the costs of breaking them are likely substantial. To ensure "safe driving," policymakers ought to build buffers and reduce vulnerabilities. Equally important, yet often overlooked, is the need to prepare for "the curve ahead"-the reversal of external current account imbalances. To avoid painful adjustments, flexible factor markets and strong financial systems will be more important than ever.

Subject: Capital inflows, Consumption, Credit, Current account deficits, Productivity

Keywords: Current account, Interest rate, Open economy, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/244
Stock No:

WPIEA2007244
ISBN:

9781451868074
ISSN:

1018-5941

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