Capital Flows, Credit Crunch and Deleveraging Dynamics: The Case of Slovenia, Croatia and Hungary in Comparison
The economic crisis which started in 2008 was not a standard business fluctuation. While large economies like USA have used standard economic tools to exit the recession for some countries the crisis has revealed much deeper problems which cannot be solved using standard economic tools. Initial measures like austerity have not worked at all in general or in particular cases. Also many standard economic remedies did not work at all. Some governments were forced to use pro-cyclical fiscal policies in order to try to balance the fiscal revenues and this has only exasperated the crisis.
What has made the crisis of 2008 even more dangerous is the fact that large economies like USA or Germany has managed to successfully exit the crisis, however many transition countries have been struggling for 6 years. However the crisis of 2008 did have one major advantage. It has forced us to reexamine foundations of economics as a science. The usual paradigms like: savings equals investments or that monetary variables should not have effects on the real economy in the long run have to be reexamined in the wake of crisis aftermath.
This paper has the objective to investigate how capital flows influenced three neighboring economies: Slovenia, Croatia and Hungary. In 1990 all countries have entered into a process which has been termed “economic transition”. The main objective of this process was to transform economies from socialism into capitalism.
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