The Political Economy of Internal Adjustment in the Baltics in 2008-10 in the Light of Models of Currency Crises
Thursday, 15 February, 2018

On Thursday, February 15, ISET hosted Dr. Vytautas Kuokštis, an Associate Professor at Vilnius University and the Institute of International Relations and Political Science. Dr. Kuokštis gave a presentation entitled “The Political Economy of Internal Adjustment in the Baltics in 2008-10 in the Light of Models of Currency Crises”.

This presentation was focused on the Baltic countries' experience during the Global Recession in 2008-10, and how the nations reacted. The global financial crisis hit the Baltic States much harder than other countries in the EU: Estonia, Latvia, and Lithuania all faced a very deep economic downturn, with many outside observers predicting they would devalue and/or default; in other words, they these countries would fail to implement the strategy of internal devaluation/adjustment.

However, the Baltic countries managed to defy those expectations and saw growth return fairly quickly – in fact, they have lately been among the fastest-growing countries in the EU. They have managed to preserve currency pegs, restore fiscal sustainability, and return to economic growth. However, the Baltic experience is puzzling from the point of view of existing models predicting currency crises, but there are factors that helped these countries adjust (such as the high degree of flexibility, labor mobility, lack of protest culture, the consensus behind exchange rate regimes and remittances). Dr. Kuokštis discussed the ways in which these factors could be integrated into broader models of currency crises with the view to improving the models' predictive/explanatory power.

The seminar was followed by an active discussion with the audience, and the participants exchanged their opinions and commented on the topic. ISET would like to thank Dr. Vytautas Kuokštis for giving an insightful presentation to the ISET community.