1. ¹Oesterreichische Nationalbank, EconomiX at University of Paris X-Nanterre and William Davidson Institute, France. E-mail: balazs.egert@oenb.at and begert@u-paris10.fr
2. ²Oesterreichische Nationalbank, France. E-mail: peter.backe@oenb.at
3. ³European Central Bank, France. E-mail: tina.zumer@ecb.int

¹The paper benefited from discussion at seminars held at the Oesterreichische Nationalbank, the Banco de España and at DG ECFIN (European Commission). We are especially indebted to Ronald Albers, Kalin Hristov, Dubravko Mihaljek, Max Watson and four anonymous referees for stimulating and useful comments. We are also indebted to Caralee McLiesh for sharing with us the dataset used in the paper 'Private credit in 129 countries' (NBER Working Paper No. 11078), to Ivanna Vladkova-Hollar for providing us with the financial liberalization indicator, to Gerg Kiss for sharing data on housing prices in Hungary, and to Rafal Kierzenkowski, Lubo Komárek, Mindaugas Leika and Peeter Luikmel for help in obtaining housing prices for France, the Czech Republic, Lithuania and Estonia, respectively. We also thank Steven Fries and Tatiana Lysenko for the EBRD transition indicators going back to the early 1990s and Rena Mühldorf for language advice. The opinions expressed in this paper do not necessarily represent the views of the European Central Bank, the Oesterreichische Nationalbank or the European System of Central Banks (ESCB).

Abstract

This paper analyses the equilibrium level of private credit to GDP in 11 Central and Eastern European countries in order to see whether the high credit growth recently observed in some of these countries led to above equilibrium private credit-to-GDP levels. We use estimation results obtained for a panel of small open OECD economies (out-of-sample sample) to derive the equilibrium credit level for a panel of transition economies (in-sample panel). We opt for this (out-of-sample) approach because the coefficient estimates for transition economies are fairly unstable. We show that there is a large amount of uncertainty to determine the equilibrium level of private credit. Yet our results indicate that a number of countries are very close or even above the estimated equilibrium levels, whereas others are still well below the equilibrium level.