Post-Crisis Growth and Integration in Europe
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Post-Crisis Growth and Integration in Europe

Catching-up Strategies in CESEE Economies

Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald

Against the backdrop of the financial crisis that unfolded in 2008, this book deals with policy challenges going forward, focusing in particular on the ongoing catching-up process in Central, Eastern and South-Eastern European countries.
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Chapter 16: Challenges for Monetary and Exchange Rate Policy in CESEE Created by the Crisis: Back to Square One?

Peter Mooslechner


16. Challenges for monetary and exchange rate policy in CESEE created by the crisis: back to square one? Peter Mooslechner Many ask what fundamental rethinking will be necessary to save macroeconomic theory. Some answers may lie with models that have applied to fit the realities of emerging markets, models that are at home with the financial market imperfections that have now unexpectedly turned up in industrialized countries as well. Purists will be reluctant to seek salvation from this direction. But they should not fear. (Frankel, 2010) The CESEE region’s traditional growth model proved unsustainable in the crisis and – following the severe downturn in the industrialized world – CESEE countries slipped into deep recessions as well. While the drought is over, the recovery in the CESEE region is partly still fragile and surrounded by various risks. In a medium-term perspective, economic growth will not only be weaker than before the crisis but probably also more volatile. This background will set the scene for monetary policy in the coming years, which will be confronted with challenges not realized before. One of the central challenges will be to continue safeguarding both financial and monetary stability, while at the same time contributing to economic recovery and sustainable long-term growth. The success of this undertaking obviously depends on external factors, such as global economic prospects and the financial position of parent banks from developed countries, but definitely also on local factors. Those include, for example, the speed of debt restructuring by different economic sectors, the time...

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