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Assessing macroeconomic vulnerability in central Europe
The central European transition-accession countries experienced several
periods of macroeconomic vulnerability since the end of output declines in
early 1990s. Some notable periods, which resulted in a necessity to implement
extensive stabilisation measures, are March 1995 in Hungary, May 1997 in the
Czech Republic, and September 1998 in the Slovak Republic. This paper shows
that the standard early warning indicators provided useful information on
macroeconomic vulnerability prior to the crises in central Europe, although
this information had been mainly indicative; that is, early warning indicators
would not have allowed one to predict the crises and their timing. In
particular, the growing gap between current account deficit and foreign direct
investment (FDI) in all the analysed countries provided clear early warning of
subsequent economic turbulence.
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