Finance and Convergence: What's Ahead for Emerging Europe?

43 Pages Posted: 20 Nov 2007

See all articles by Rudolfs Bems

Rudolfs Bems

International Monetary Fund (IMF); European Central Bank (ECB)

Philip Schellekens

International Monetary Fund (IMF)

Date Written: November 2007

Abstract

This paper singles out the key short-term risks and medium-term challenges related to finance and convergence in emerging Europe. With the help of a general equilibrium theoretical framework, the paper identifies pragmatic directions for policymakers. While the "speed limits" to capital inflows may be hard to determine, the costs of breaking them are likely substantial. To ensure "safe driving," policymakers ought to build buffers and reduce vulnerabilities. Equally important, yet often overlooked, is the need to prepare for "the curve ahead" - the reversal of external current account imbalances. To avoid painful adjustments, flexible factor markets and strong financial systems will be more important than ever.

Keywords: Current account balances, Financial systems, Capital flows, Emerging markets, Financial risk

Suggested Citation

Bems, Rudolfs and Schellekens, Philip, Finance and Convergence: What's Ahead for Emerging Europe? (November 2007). IMF Working Paper No. 07/244, Available at SSRN: https://ssrn.com/abstract=1030686

Rudolfs Bems (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Philip Schellekens

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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