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 8: Two Czech crises revisited: pantarhei

Eva Zamrazilová and Václav Žďárek


There is not enough room to describe all the steps that the Czech economy went through in the 1990s, so this chapter will offer a brief sketch instead. As a former centrally planned economy (CPE), the economy suffered from many ‘illnesses’ that had to be remedied, and policy-makers opted to do so the Czech way. A radical reform implemented in 1991 was followed by the peaceful split-up of the Czechoslovak Federation in 1992. The independent Czech Republic kept to the previously charted course and, as a result, its initial results exceeded expectations, and praise and rewards were heaped upon it; for example, membership of international organizations – such as the Organisation for Economic Co-operation and Development (OECD) in 1995 – and praise for its achievements at international events. However, the flip side of the coin was not particularly good: serious flaws in the system of laws, a rapid build-up of external and internal imbalances, unfinished transformation and restructuring of many (quasi-) state-owned firms, to give just a few examples. On the other hand, the country had a history of a low-inflation and low-state-debt environment, traditional consumption patterns, and so on. Two stories will be told in this chapter: stories the effects and implications of which were, and are, different.

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