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The Financial Instability Hypothesis and the Financial Crisis in Eastern European Emerging Economies

Author

Listed:
  • Grytten, Ola Honningdal

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Koilo, Viktoriia

    (HSM/NLA)

Abstract
The present paper applies the financial instability hypothesis in order to explain the financial crises of 2008-2010 in eleven emerging Eastern European economies Also, it seeks to map if institutional frameworks of these countries enabled them to stand against the factors leading into the financial crisis. The paper maps cycles of three macroeconomic indicators representing the real economy, and four indicators representing financial markets. A cycle analysis is conducted with the help of a Hoderick-Prescott filter, made to isolate cycles from trends in time series. The paper concludes that there were substantial positive financial cycles previous to the financial crisis mirrored by similar cycles in the real economy. Similarly, the results show negative cycles in the same parameters during the years of crisis. It seems as an uncontrolled increase in money and credit caused the economy to overheat and thereafter contract in both substantial financial and real economy crises. Also, the paper compiles twelve different indices of institutional development. These are standardized and presented in an institutional development matrix, showing that the institutional framework for the eleven economies was weak previous to and under the melt down of the economy. The construction of an integrated institutional development index on the basis of the same twelve parameters confirm institutional shortcomings, which may have made the economies less able to guard themselves from a crisis initiated by both domestically and internationally financial instability.

Suggested Citation

  • Grytten, Ola Honningdal & Koilo, Viktoriia, 2019. "The Financial Instability Hypothesis and the Financial Crisis in Eastern European Emerging Economies," Discussion Paper Series in Economics 8/2019, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2019_008
    as

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    References listed on IDEAS

    as
    1. Pedro Cerqueira & Monica Ioana Pop Silaghi & Andreea Stoian & Camelia Turcu, 2018. "Perspectives on Financial, Monetary, and Economic Developments in Eastern Europe," Eastern European Economics, Taylor & Francis Journals, vol. 56(5), pages 329-333, September.
    2. Thierry Bracke & Reiner Martin (ed.), 2012. "From Crisis to Recovery," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-03483-0, March.
    3. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Viktoriia Koilo, 2019. "Evidence of the Environmental Kuznets Curve: Unleashing the Opportunity of Industry 4.0 in Emerging Economies," JRFM, MDPI, vol. 12(3), pages 1-18, July.

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    More about this item

    Keywords

    Financial Crisis; Financial Instability Hypothesis; Institutional Development; Crisis Anatomy; Financial History; Eastern European Economies; Emerging Economies;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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