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Political Credit Cycles: The Case of the Eurozone

Jesús Fernández-Villaverde, Luis Garicano () and Tano Santos
Authors registered in the RePEc Author Service: Jesus Fernandez-Villaverde ()

Journal of Economic Perspectives, 2013, vol. 27, issue 3, 145-66

Abstract: We study the mechanisms through which the entry into the euro delayed, rather than advanced, key economic reforms in the eurozone periphery and led to the deterioration of important institutions in these countries. We show that the abandonment of the reform process and the institutional deterioration, in turn, not only reduced their growth prospects but also fed back into financial conditions, prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident. We analyze empirically the interrelation between the financial boom and the reform process in Greece, Spain, Ireland, and Portugal and, by way of contrast, in Germany, a country that did experience a reform process after the creation of the euro.

JEL-codes: D02 D72 E44 F33 F36 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/jep.27.3.145
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Working Paper: Political Credit Cycles: The Case of the Euro Zone (2013) Downloads
Working Paper: Political credit cycles: the case of the Euro zone (2013) Downloads
Working Paper: Political Credit Cycles: The Case of the Euro Zone (2013) Downloads
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