The role of macro-prudential policies in the boom and adjustment phase of the credit cycle in Estonia

The Estonian economy experienced an unusually long business and credit cycle during the first decade of the 21st century. The magnitude of the cycle tested what can be achieved by traditional policy tools and the limits of macro-prudential policies. The country's financial sector, almost fully consisting of foreign banks, displayed the complexities of cross-border regulation and supervision. Capital and liquidity requirements that were stricter than international minimums, as well as the build-up of fiscal buffers, were instrumental to engineering an orderly adjustment. Openness and integration, including well-advanced cross-border cooperation, were equally important in maintaining financial stability throughout the global financial crisis.Banks&Banking Reform,Access to Finance,Debt Markets,Emerging Markets,Bankruptcy and Resolution of Financial Distress

The Estonian Currency Board

This paper reviews the history of the introduction of the Estonian kroon under a currency board arrangement. On June 20, 1992, Estonia became the first country from the former Soviet Union to abandon the Russian ruble and introduce its own currency. The paper looks at the factors behind this decision and discusses the implementation of the currency reform. It then assesses the economic impact of the reform and also compares Estonia''s experience with that of its Baltic neighbors. It concludes that although the currency board arrangement made an important contribution to the early success of Estonia''s economic stabilization and reform program, the underlying financial and structural policies were crucial for that success.