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Financial Cycles and the Real Economy

Lessons for CESEE Countries Edited by Ewald Nowotny, Governor, Doris Ritzberger-Grünwald, Director and Peter Backé, Deputy Head, Foreign Research Division, Oesterreichische Nationalbank, Austria
What is the link between the financial cycle – financial booms, followed by busts – and the real economy? What is the direction of this link and how salient is this connection? This unique book examines these fundamental questions and offers a paramount contribution to the debate surrounding the recent financial and economic crisis.
Published in Association with Oesterreichische Nationalbank, Austria
Extent: 328 pp
Hardback Price: $140.00 Web: $126.00
Publication Date: 2014
ISBN: 978 1 78347 762 3
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  • Economics and Finance
  • Financial Economics and Regulation
  • Money and Banking
What is the link between the financial cycle – financial booms, followed by busts – and the real economy? What is the direction of this link and how salient is this connection? This unique book examines these fundamental questions and offers a paramount contribution to the debate surrounding the recent financial and economic crisis.

With contributions from eminent academics and policy makers, this multi-disciplinary collection ascertains the policy challenges perpetuated by financial cycles in the real economy. Prominent macroeconomic models are challenged as experts question the nexus between financial deepening and growth, and assess the contribution of real estate bubbles to financial crises. Focusing on Europe, and in particular on Central, Eastern and South-Eastern Europe, the collection provides country-specific accounts, suggesting policy initiatives for dealing with financial cycles. The book concludes that financial cycles are leading indicators for financial crises and calls for economists to integrate financial factors into macroeconomic modelling.

The multi-faceted nature of this book will be invaluable to researchers and students interested in the post financial crisis debate. Policy makers and practitioners will find the expert insight into lessons learned in Europe in the wake of the financial crisis and the proposal for dynamic policy initiatives to be invaluable.
Contributors: J. Asmussen, M. Belka, D. Bernhofer, C. Borio, C.M. Buch, G. M. Caporale, K. D'Hulster, M. Dumičić, O. Fernández-Amador, M. Gächter, U. Herman, O. Holtemöller, B. Jazbec, M. Lozej, D. Mihaljek, B. Mijailović, E. Nowotny, E. Ortega, J. Peñalosa, C. Rault, F. Sindermann, V. Šošić, A. Sova, R. Sova, A. Subelyte, J.W. van den End, P. van den Noord, A. Winkler, E. Zamrazilová, V. Žďárek


Contents:

Preface

PART I: FRAMING THE DISCUSSION ON THE FINANCE-GROWTH NEXUS
1. Towards a European Perspective on Financial Integration
Ewald Nowotny

2. The Financial Ccycle and Macroeconomics: What Have We Learned and What are the Policy Implications?
Claudio Borio

3. Do We Need New Modelling Approaches in Macroeconomics?
Claudia M. Buch and Oliver Holtemöller

4. Economic Convergence Across Central, Eastern and South-Eastern Europe: Achievements and Challenges
Jörg Asmussen

PART II: CREDIT CYCLES, CENTRAL BANK POLICY AND THE REAL ECONOMY IN CESEE
5. Capital Flows as a Source of Funding in a Catching-up Economy: Lessons from the Crisis, Challenges for the Future
Marek Belka

6. Synchronisation and Decoupling of Cycles in Slovenia
Boštjan Jazbec, Uroš Herman and Matija Lozej

7. Credit Cycles and Central Bank Policy in Croatia: Lessons from the 2000s
Mirna Dumičić and Vedran Šošić

8. Two Czech Crises Revisited: Panta Rhei
Eva Zamrazilová and Václav Žďárek

PART III: REAL ESTATE BUBBLES AND THE FINANCIAL CRISIS
9. Do We Understand What Drives House Prices?
Dubravko Mihaljek and Agne Subelyte

10. The Real Estate Sector and the Financial Crisis: the Spanish Experience
Eloísa Ortega and Juan Peñalosa

11. Housing Bubbles: What are their Causes and Can We Get Rid of Them?
Paul van den Noord

PART IV: THE FINANCE-GROWTH NEXUS: IMPLICATIONS FOR CESEE
12. Finance, Growth and Crisis – a European Perspective
Adalbert Winkler

13. The Finance-growth Nexus: Evidence from Ten New EU Members
Guglielmo Maria Caporale, Christophe Rault, Anamaria Sova and Robert Sova

14. Finance, Potential Output and the Business Cycle
Dominik Bernhofer, Octavio Fernández-Amador, Martin Gächter and Friedrich Sindermann

PART V: THE POLICY RESPONSE IN EUROPE: HOW TO DEAL WITH THE FINANCIAL CYCLE
15. Building Resilient Financial Systems in the CESEE Region
Katia D'Hulster

16. How to Deal with the Financial Cycle – the Case of Serbia
Bojana Mijailović

17. Financial Cycles and Macro-prudential Policy
Jan Willem van den End

Index