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EVALUATING THE IMPACT OF CRISIS ON ECONOMY IN THE BALTICS

Linas Cekanavicius, V. Vaitkus

Abstract

The paper attempts to assess the impact of the recent 2007-2009 crisis on economies of the Baltic countries. Following the relevant literature review, two different approaches are tested: the first one attempts to summarize two dimensions of crisis severity, and the second approach is based on the notion that the recession brought by the crisis is just a painful readjustment of economy to normal trend of development which was corrupted by the unhealthy boom. In the first case, two types of severity index, embracing both the depth of slump and length of recovery, are calculated: one proposed by Reinhardt and Rogoff, and its modification, suggested by the authors of the paper. For the second approach two different methods were employed: one examines and compares trend and actual GDP growth per capita, and another does the same for GDP growth per working person. The results of analysis indicate that pre-crisis boom of the Baltic countries resulted in relatively deep recessions, albeit rather short lasting ones. However, rebounds to the trend rates were non-sustainable, since quite soon after that all three Baltic economies descended to a somewhat slower growth trajectories. The reliability of the obtained results should not be overestimated, since they were based on relatively short term time-series.

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