Similar policy recommendations follow from another paper 6 prepared by IMF staff, which was presented in Session 2 and sought to identify the features that distinguish “good” credit  2  Neagu, F., Mărgărit, A., Copaciu, M., Racaru, I. Mircea, R., Andrassy, A.: Non-Government Credit in Romania: Perspectives and Implications, National Bank of Romania, Occasional Paper No. 4, June 2006. 3  Ramanauskas, T: Interest Rates, Credit and Macroeconomy – a Small Structural Model for the Lithuanian Case, mimeo, November 2006. 4  World Bank EU8+2 Regular Economic Report, Special Topic: Credit Expansion in Emerging Europe: A Cause for Concern?, January 2007. 5  Bems, R., Schellekens, P.: Finance and Convergence: What's Ahead for Emerging Europe?, IMF Working Paper No. 07/244, November 2007. 6  Barajas, A., Dell’Ariccia, G., Levchenko, A.: Credit Booms: the Good, the Bad, and the Ugly, mimeo, November 2007. 2  BIS Review 137/2007  booms from “bad” ones, i.e. such that probably eventually lead to a banking crisis. The analysis has shown, inter alia, that better banking supervision lowers the probability of a crisis. It has also established that booms that coincide with current account imbalances seem less dangerous (a finding that may seem counter-intuitive at a first glance), that trade openness is another factor that makes a crisis less probable, and that the more prolonged booms as well as those accompanied by high inflation or slow economic growth are the “bad” ones. Another important topic raised during the conference was housing.
However, there are notable differences across the region: the Baltic states (especially Latvia and Estonia) and South-East European countries (especially Croatia and Bulgaria) seem to have approached or even reached the equilibrium by 2004 or 2005, whereas in the case of the Visegrad countries (especially the Czech Republic and Poland) the credit-to-GDP ratio seemed to remain below its estimated equilibrium level at that time. Of course, it might well be that some of the CEE economies have overshot the  1  Kiss, G., Nagy, M., Vonnák, B.: Credit Growth in Central and Eastern Europe: Trend, Cycle or Boom?, MNB Working Paper No. 2006/10, November 2006 and Egert, B., Backé, P., Zumer, T.: Credit Growth in Central and Eastern Europe: New (Over)Shooting Stars?, ECB Working Paper No. 687, October 2006. BIS Review 137/2007  1  equilibrium only recently, but one has to wait for a while until the relevant data become available before this overshooting can be captured in empirical analyses. The general upshot of these papers is that the rapid credit expansion in CEE economies has mainly been fuelled by demand factors: the buoyant economic growth and the ensuing increases in disposable incomes, rising expectations with regard to future income prospects related to EU accession, remarkable decreases in interest rates, and falling or low and stable inflation rates.