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. This definitive 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.
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 cycle 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 Holtemoller 4. Economic convergence across Central, Eastern and South-Eastern Europe: achievements and challenges Jorg 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 Bostjan Jazbec, Uros Herman and Matija Lozej 7. Credit cycles and central bank policy in Croatia: lessons from the 2000s Mirna Dumicic and Vedran osic 8. Two Czech crises revisited: panta rhei Eva Zamrazilova and Vaclav darek 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 Eloisa Ortega and Juan Penalosa 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 Fernandez-Amador, Martin Gachter 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 Mijailovic 17. Financial cycles and macro-prudential policy Jan Willem van den End Index