Romania in a Post-Credit Crunch World? A Cautionary Tale from Australia and America

by Costea, Carmen and Keen, Steve
Published in Romanian Journal of Economic Forecasting
, 2009, volume 10 issue 1, 16-35

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We present data on debt accumulation in Australia and the United States, and tentative
data on Romania, to pose the question of whether Romania might experience a credit
crunch as a result of the US subprime financial crisis. We develop a model of a credit
crunch in a pure credit economy with endogenous money creation to show how
changes in bank lending practices and borrower repayment behaviour can bring about
an economic decline.

Keywords: Macroeconomics, Monetary Policy, Debt Deflation, Financial Instability
JEL Classification:
E12 , E21, E31, E44, E51, E52, E63, E66