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Success or Failure? Current Account Problems in the Baltic States

Gábor Kutasi-2014-01-01-Repository of the Academy's Library (Library of the Hungarian Academy of Sciences)
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TL;DRAbstract

The economic story of emerging Baltic countries seemed to be a success before 2007. The region has seemed to be very disciplined in fiscal and monetary sense since there independence, besides, produced a boosting economic growth and significant real convergence to the higher developed EU members. But these countries with balanced policies suffered sudden stop in 2007. If fiscal balance, debt sustainability and fixed exchange rate is secured, what else can undermine the growth potential? The hypothesis is that the process of income growth and quick catching-up of Baltic economies were established on external financing. Baltic countries can be complied to the political economy model of macroeconomic populism. The analysis is based on the macroeconomics of the Feldstein-Horioka puzzle and the reverse Balassa-Samuelson effect. The paper examines terms of trade, NEER, REER, ULC, current account imbalance, inflation and savings to conclude on reasons sudden stop in the Baltic region. Through

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The economic story of emerging Baltic countries seemed to be a success before 2007. The region has seemed to be very disciplined in fiscal and monetary sense since there independence, besides, produced a boosting economic growth and significant real convergence to the higher developed EU members. But these countries with balanced policies suffered sudden stop in 2007. If fiscal balance, debt sustainability and fixed exchange rate is secured, what else can undermine the growth potential? The hypothesis is that the process of income growth and quick catching-up of Baltic economies were established on external financing. Baltic countries can be complied to the political economy model of macroeconomic populism. The analysis is based on the macroeconomics of the Feldstein-Horioka puzzle and the reverse Balassa-Samuelson effect. The paper examines terms of trade, NEER, REER, ULC, current account imbalance, inflation and savings to conclude on reasons sudden stop in the Baltic region. Through

Keywords

Current accountEconomicsConvergence (economics)Inflation (cosmology)DebtInternational economicsSudden stopExchange rate

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