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Political credit cycles: the case of the Euro zone

Jesus Fernandez-Villaverde (), Luis Garicano () and Tano J. Santos

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study the mechanisms through which the adoption of the Euro delayed, rather than advanced, economic reforms in the Euro zone 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.

Keywords: financial crisis; bubbles; Euro crisis; political economy (search for similar items in EconPapers)
JEL-codes: D2 D72 E44 F33 F36 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pol
Date: 2013-07-31
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Published in Journal of Economic Perspectives, 31, July, 2013, 27(3), pp. 145-166. ISSN: 0895-3309

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http://eprints.lse.ac.uk/51255/ Open access version. (application/pdf)

Related works:
Journal Article: Political Credit Cycles: The Case of the Eurozone (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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