Application of the integrated accounts framework for empirical investigation of the economic and financial cycle in Lithuania

Direct Link:
Collection:
Mokslo publikacijos / Scientific publications
Document Type:
Knyga / Book
Language:
Anglų kalba / English
Title:
Application of the integrated accounts framework for empirical investigation of the economic and financial cycle in Lithuania
Publication Data:
Vilnius : Lietuvos bankas, 2018.
Pages:
19 p
Series:
Occasional paper series; no. 20
Contents:
Summary — Introduction — The context of macroeconomic developments in the run-up to the crisis — Sectoral balance sheet expansion, contraction and reflation — The link between macroeconomy and finance – decomposition of the financial account of the total economy — The role of bank credit in the economic cycle — Replacement of accumulation of private debt with public debt — Monetary dynamics during the financial cycle — Concluding remarks — References.
Summary / Abstract:

LTReikšminiai žodžiai: Ekonominis ir finansinis ciklas; Ekonominė krizė; Empirinis tyrinėjimas; Integruotos sąskaitų sistemos; Pinigų dinamika; Skola; Debt; Economic and financial cycle; Economic downturn; Empirical investigation; Lithuania; Monetary dynamics; The economic and financial cycle; The integrated accounts framework.

ENBy resorting to the analytical integrated accounts framework, this paper investigates the relationship between economic and financial imbalances during the recent economic and financial cycle in Lithuania. There is clear evidence from the financial accounts data that there was a pronounced expansion of balance sheets of institutional sectors during the phase of the economic upturn, whereas the economic downturn was essentially a balance-sheet recession characterised by contracting private sector balance sheets and the reversal in credit flows and monetary dynamics. The boom-and-bust cycle was strongly associated with exuberant bank lending during the boom years, followed by a sudden reversal of lending conditions and the subsequent repatriation of debt financing by foreign banks. The Lithuanian experience also confirms that strong credit and asset price boom accompanied by economic imbalances, and debt financing of current account deficits in particular, is a potentially risky mix of economic conditions. The policy response to crisis was a market-imposed austerity but nevertheless there was a sharp rise in public debt, essentially offsetting deleveraging in the private sector. The effective replacement of growth of private sector debt with a rapid accumulation of public debt was a very important stabilising factor Certain characteristics of bank credit (namely, its partial self-financing) imply that under some conditions economic stabilisation could have been achieved through domestic financing. However, the government had to resort to foreign financing, which was rather costly. During the crisis the monetary dynamics was driven by government borrowing from abroad, stepped up capital transfers from abroad and positive current account adjustments, all of which allowed foreign parent banks to withdraw debt financing and replace it with domestic deposit financing. [From the publication]

Related Publications:
What drove the rise in bank lending rates in Lithuania during the low-rate era? / Jaunius Karmelavičius, Ieva Mikaliūnaitė-Jouvanceau and Andrius Buteikis. Baltic journal of economics. 2023, Vol. 23, no. 2, p. 162-199.
Permalink:
https://www.lituanistika.lt/content/75768
Updated:
2020-12-17 20:19:33
Metrics:
Views: 16
Export: