Financial Cycles and the Real Economy
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Financial Cycles and the Real Economy

Lessons for CESEE Countries

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

What is the link between the financial cycle - financial booms, followed by busts - and the real economy? What is the direction of this link and how salient is this connection? This unique book examines these fundamental questions and offers a paramount contribution to the debate surrounding the recent financial and economic crisis.
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Chapter 1: Towards a European perspective on financial integration

Ewald Nowotny


The purpose of this chapter is to give an introduction to the various interactions of the financial cycle and the real economy both in general terms and more specifically for countries in Central, Eastern and South-Eastern Europe (CESEE). Many countries experienced pronounced boom–bust cycles, which raise questions about the right policy response in the boom phase, but also during the downswing of the financial cycle, after the bubble has burst. The chapter is structured as follows. The next section deals with current developments in Europe, where we see a very gradual and still heterogeneous recovery. Sections 1.3 and 1.4 deal with current policy challenges, namely how to take a European perspective on financial integration issues, and how to get a better understanding of the financial cycle in macroeconomics. The chapter concludes with some open policy questions, which will be dealt with in various contributions throughout this volume.

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