WPS5835
POLICY RESEARCH WORKING PAPER            5835
The Role of Macro-Prudential Policies
in the Boom and Adjustment Phase
of the Credit Cycle in Estonia
Andres Sutt
Helen Korju
Kadri Siibak
The World Bank
Europe and Central Asia Region
Office of the Chief Economist
October 2011


POLICY RESEARCH WORKING PAPER 5835
Abstract
The Estonian economy experienced an unusually long                 Capital and liquidity requirements that were stricter
business and credit cycle during the first decade of the           than international minimums, as well as the build-up
21" century. The magnitude of the cycle tested what can            of fiscal buffers, were instrumental to engineering an
be achieved by traditional policy tools and the limits of          orderly adjustment. Openness and integration, including
macro-prudential policies. The country's financial sector,         well-advanced cross-border cooperation, were equally
almost fully consisting of foreign banks, displayed the            important in maintaining financial stability throughout
complexities of cross-border regulation and supervision,           the global financial crisis.
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by the World Bank to provide open access to its research and make a contribution to development policy discussions
around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors
may be contacted at asutt@imf.org.
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