Political credit cycles: the case of the Euro zone

Fernández-Villaverde, Jesús, Garicano, Luis and Santos, Tano J. (2013) Political credit cycles: the case of the Euro zone. Journal of Economic Perspectives, 27 (3). pp. 145-166. ISSN 0895-3309

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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.

Item Type:	Article
Official URL:	http://www.aeaweb.org/jep/
Additional Information:	© 2013 American Economic Association
Divisions:	Economics Management Centre for Economic Performance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D2 - Production and Organizations D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
Date Deposited:	01 Sep 2014 10:26
Last Modified:	12 Dec 2024 00:25
URI:	http://eprints.lse.ac.uk/id/eprint/51255

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