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The Challenge of Economic Rebalancing in Europe

The Challenge of Economic Rebalancing in Europe

Perspectives for CESEE Countries

Edited by Ewald Nowotny, Doris Ritzberger-Grünwald and Helene Schuberth

In the long aftermath of the acute global financial crisis of 2008/09, “rebalancing” the economy with new sources of growth and productivity remains a persistent necessity. This book addresses the resulting trade-offs and challenges. These needs, and the corresponding policy challenges, are especially prevalent in Europe, in particular Central, Eastern and South-Eastern Europe. On this issue, this book contributes lessons learned from earlier balance sheet recessions. It also addresses the often overlooked link between macroeconomic imbalances and economic inequality. Further contributions focus on the interaction between monetary policy and financial stability, adding a regional perspective to these important issues.

Chapter 9: Macroeconomic imbalances and economic inequality in CESEE

Mario Holzner

Subjects: economics and finance, financial economics and regulation, international economics, money and banking


Milanovic and Ersado (2010) indicate that research on inequality in transition is constrained by very little theory explaining the changes of inequality during transition and only a limited number of rigorous empirical studies available. However, early explanations and descriptions were offered and summarized in the seminal work of this topic’s doyen, Branko Milanovic (1998, 1999). The aim of this chapter is to statistically take into account the whole period since the beginning of transition, including the more recent boom-and-bust period, and to shed light on the specific relationship of macroeconomic imbalances and economic inequality in Central, Eastern and South-Eastern Europe (CESEE), which is an important but under-researched issue since the early transition crisis. This descriptive analysis is based on related findings of almost a decade of empirical inequality in transition research at the Vienna Institute for International Economic Studies (wiiw). The overall research question is: in what way was the general development of inequality in transition as well as the marked differences in levels of inequality between the transition countries affected by macroeconomic imbalances, or in what way did they have an impact on the building up of these imbalances?

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