Ghosh, SwatiSugawara, NaotakaZalduendo, Juan2012-03-192012-03-192011-03-01https://hdl.handle.net/10986/3380This paper examines the growth patterns of emerging Europe and the Commonwealth of Independent States (CIS) countries prior to the global financial crisis. The aim is to draw lessons on what policies can best position these countries going forward to enjoy growth without a buildup in macro and financial vulnerability. Cluster analysis is used to classify these countries across the growth and vulnerability dimensions; namely, a classification into low or high growth outcomes, each of which may occur with low or high vulnerability features. The vulnerability indicators used are multifaceted, covering both the domestic and the external dimensions that have been identified in previous studies as being good indicators of likelihood of crisis -- itself understood as multidimensional. Based on multinomial logit regressions, the initial conditions and the economic policies that might affect the probabilities of being in each of the four possible cluster combinations are examined. Many (if not most) of the countries in the sample experienced very large capital inflows relative to their gross domestic product prior to the crisis, which can complicate macroeconomic management and lead to a buildup of vulnerability. These large inflows were partly due to the high liquidity in global markets and, at least for some countries in the country sample, the particular attractiveness of "new Europe and emerging countries in the region" in the eyes of foreign investors. Nonetheless, the analysis finds strong evidence that the macroeconomic and structural policies that over time influence the structure of the economy, can play a significant role in explaining (and, going forward, in influencing) the different growth and vulnerability patterns experienced by the countries covered in this paper.CC BY 3.0 IGOAGGREGATE DEMANDAMERICAN ECONOMIC REVIEWASSET PRICESASSETSBALANCE OF PAYMENTSBALANCE SHEETBALANCE SHEETSBANKING SECTORBANKING SECTOR DEVELOPMENTSBROAD MONEYBUSINESS CYCLECAPITAL ACCOUNTCAPITAL ACCOUNT LIBERALIZATIONCAPITAL ACCOUNT OPENNESSCAPITAL CONTROLSCAPITAL FLOWSCAPITAL INFLOWSCAPITAL MARKETCAPITAL OUTFLOWSCAPITAL TRANSACTIONSCHECKSCOLLATERALCOMMERCIAL BANKSCREDIT BOOMCREDIT BOOMSCREDIT GROWTHCURRENT ACCOUNTCURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSCYCLICAL FACTORSCYCLICAL FISCAL POLICYDEBT DATADEBT RATIOSDEPENDENT VARIABLESDEPOSITDESCRIPTIVE STATISTICSDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDIVERSIFICATIONDOMESTIC CREDITDOMESTIC DEMANDECONOMETRIC EVIDENCEECONOMIC ACTIVITYECONOMIC CONDITIONSECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC OUTLOOKECONOMIC OVERHEATINGECONOMIC POLICIESECONOMIC SLOWDOWNECONOMIC STRUCTUREEMERGING MARKETSEMPIRICAL REGULARITIESEMPIRICAL RESULTSESTIMATED COEFFICIENTESTIMATED COEFFICIENTSESTIMATION RESULTSEXCHANGE ARRANGEMENTSEXCHANGE RATEEXCHANGE RATE ARRANGEMENTSEXCHANGE RATE FLEXIBILITYEXCHANGE RATE POLICIESEXCHANGE RATE REGIMEEXCHANGE RATE REGIME CLASSIFICATIONEXCHANGE RESTRICTIONSEXPERIENCE OF COUNTRIESEXPORT PERFORMANCEEXTERNAL ASSETSEXTERNAL DEBTEXTERNAL IMBALANCESEXTERNAL POSITIONSEXTERNAL SHORT-TERM DEBTEXTERNAL VULNERABILITYFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL OPENNESSFINANCIAL SECTORFINANCIAL VULNERABILITYFISCAL BALANCEFISCAL BALANCESFISCAL DEFICITFISCAL DEFICITSFISCAL POLICIESFISCAL POLICYFLEXIBLE EXCHANGE RATESFOREIGN ASSETSFOREIGN DIRECT INVESTMENTFOREIGN EXCHANGEFOREIGN EXCHANGE RESERVEFOREIGN EXCHANGE RESERVESFOREIGN INVESTORSFOREIGN LIABILITIESFOREIGN RESERVESGDPGLOBAL CONDITIONSGLOBAL LIQUIDITYGLOBAL MARKETSGOVERNMENT EXPENDITUREGROSS DOMESTIC PRODUCTGROWTH DETERMINANTSGROWTH IMPACTGROWTH MODELGROWTH RATEGROWTH RATESHIGH GROWTHHISTORY OF EXCHANGE RATEIMBALANCESIMPORTIMPORT GROWTHIMPORTSINCOMEINCOME LEVELINDEPENDENT VARIABLESINDIVIDUAL COUNTRIESINFLATIONINTERNATIONAL BANKINTERNATIONAL MONETARY FUNDINVESTMENT RISKSLEVEL OF DEVELOPMENTLEVEL OF INCOMELIQUIDITYLOANLOCAL CURRENCYMACROECONOMIC MANAGEMENTMACROECONOMIC OVERHEATINGMARKET UNCERTAINTYMARKET VOLATILITYMATURITYMONETARY CONDITIONSMONETARY FUNDMONETARY POLICIESMONETARY POLICYNATIONAL BANKNEGATIVE IMPACTNEGATIVE IMPACT ON GROWTHNOMINAL EXCHANGE RATEOIL PRICESOVERVALUATIONPOLICY ANALYSISPOLICY MAKERSPOLICY RESEARCHPOLICY VARIABLESPOVERTY REDUCTIONPRIVATE LOANPRIVATE SECTORPRIVATE SECTOR CREDITPRODUCTIVE INVESTMENTSPUBLIC EXPENDITUREPUBLIC FINANCESPUSH FACTORSRAPID GROWTHREAL EFFECTIVE EXCHANGE RATEREAL EXCHANGE RATEREAL EXCHANGE RATE OVERVALUATIONREAL GDPREAL INTERESTREAL INTEREST RATESRECESSIONRECESSIONSREGRESSION ANALYSISRELATIVE IMPORTANCERISK AVERSIONSHORT TERM DEBTSHORT-TERM DEBTSTANDARD DEVIATIONSTANDARD ERRORSSTRUCTURAL POLICIESTOTAL EXPORTSTRADE BALANCETRADE OPENNESSTRANSITION COUNTRIESTRANSITION PATHTROUGHUNCERTAINTYUPWARD PRESSURESVOLATILITYWorld Bank10.1596/1813-9450-5592