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Iacovos Ioannou
Lithuania’s current credit cycle highlights the strong link between housing prices and credit. We explore this relationship in more detail by analyzing the main features of credit, housing price, and output cycles in Baltic and Nordic countries during1995-2017. We find a high degree of synchronization between Lithuania’s credit and housing price cycles. Panel regressions show a strong correlation between a credit upturn and housing price upturn. Moreover, panel VAR suggests that shocks in housing prices, credit, and output within and outside Lithuania strongly impact Lithuania’s credit.
Iacovos Ioannou

prices adjust the least during downturns, an indication of downward rigidity. Table 4. Lithuania: Credit, Housing Price, and Output Cycles Credit Cycle Housing Price Cycle Output Cycle Number of upturns 3.0 6.0 3.0 Number of downturns 3.0 5.0 2.0 Number of quarters in upturn 55.0 46.0 79.0 Number of quarters in downturn 31.0 32.0 8.0 Time in upturn (percent) 60.4 51.7 86.8 Time in downturn (percent) 34.1 36.0 8.8 Duration of upturn (average) 19.0 7.7 26

Iacovos Ioannou

Front Matter Page European Department Contents I. Introduction II. The Current Credit Cycle in Comparison with the Pre-Crisis Boom III. The Main Features and Synchronization of Credit, Housing Price, and Output Cycles IV. Determinants of Credit Upturn V. Assessing the Impact of Domestic and External Shocks on Credit VI. Conclusions References Tables 1. Credit Cycle Characteristics 2. Housing Price Cycle Characteristics 3. Output Cycle Characteristics 4. Lithuania: Credit, Housing Price, and Output Cycles 5. Lithuania

International Monetary Fund

beginning of 2010 that the contraction of credit to the private sector has become more pronounced—on a year-on-year basis—in Latvia than in Lithuania. In comparison, credit to the private sector in the two main home countries for banks in Lithuania continued to grow (Sweden) or decline moderately (Denmark). A. What is Driving the Severe Credit Contraction in Lithuania? The Legacy of a Credit Boom 6. The size of the credit boom is the predominant explanation for the current contraction in credit . In Lithuania, credit grew particularly rapidly and relatively

International Monetary Fund. European Dept.

sector, remain a potential risk though. Reform of credit unions is progressing as planned and should strengthen this relatively small sector over time. Lithuania: Credit to NFCs and HHs, 2006-17:Q1 Sources: Bank of Lithuania; Haver Analytics; and IMF staff calculations. Lithuania: Housing Prices, 2006-16 Sources: Haver Analytics; and IMF staff calculations. 7. Lithuania’s external balance is broadly consistent with medium-term fundamentals and desirable policies, but rapid wage growth raises concerns about competitiveness and growth ( Box 1

International Monetary Fund

rise in the share of loans in foreign currency ( Figure 2 ). Figure 1. Lithuania: Credit Growth, 2002-08 Sources: Bank of Lithuania; and IMF staff estimates. Figure 2. Lithuania: Financial Indicators, 2004-08 Source: Bloomberg. 1/ JP Morgan Euro EMBI Global sovereign spreads. Data for Latvia are spreads of bond maturing on 4/2/14 versus comparable maturity of German Bunds. 2/ Gaps signify that no transaction took place. Box 1. Current Account and Productivity Developments The widening of the CAD in recent years is due to the rise in

International Monetary Fund
In Lithuania, the case for complementing the on going fiscal adjustment with revenue measures is strong. In addition to supporting the adjustment, options to raise revenue need to be tailored to enhance growth and export competitiveness. International and empirical evidence suggest important scope for revenue-enhancing tax reforms in Lithuania. Lithuania is in a position to rebalance growth towards exports. Executive Directors suggest a broad tax reform strategy that could raise revenue and tax new revenue sources while supporting growth, competitiveness, and equity to substantially bolster revenues.
Mr. Luc Laeven, Harry Huizinga, and Gaetan Nicodeme

Credit Hungary Credit Credit Iceland Credit Credit Ireland Credit Credit Italy Credit Credit Latvia Credit Credit Lithuania Credit Credit Luxembourg Credit Credit Malta Credit Credit Netherlands Credit Credit Norway Credit Credit Poland Credit Credit Portugal Credit Credit Romania Credit Credit Russia Credit Credit Slovak Republic Credit No relief Slovenia Credit Credit Spain Credit Credit Sweden

Mr. Luc Laeven, Harry Huizinga, and Gaetan Nicodeme
This paper presents a model of a multinational firm's optimal debt policy that incorporates international taxation factors. The model yields the prediction that a multinational firm's indebtedness in a country depends on a weighted average of national tax rates and differences between national and foreign tax rates. These differences matter because multinationals have an incentive to shift debt to high-tax countries. The predictions of the model are tested using a novel firm-level dataset for European multinationals and their subsidiaries, combined with newly collected data on the international tax treatment of dividend and interest streams. Our empirical results show that corporate debt policy indeed not only reflects domestic corporate tax rates but also differences in international tax systems. These findings contribute to our understanding of how corporate debt policy is set in an international context.
Greetje Everaert, Ms. Natasha X Che, Ms. Nan Geng, Bertrand Gruss, Gregorio Impavido, Miss Yinqiu Lu, Christian Saborowski, Mr. Jerome Vandenbussche, and Mr. Li Zeng

versa, varies by country (discussed further below). For example, the results suggest that, for Montenegro and Lithuania, credit supply became more constraining in the post-crisis period which is consistent with the findings in the panel regressions in Section II (the constraint is now not only in the relative sense, but also in the absolute sense). However, for other countries examined in the case studies, simultaneously tightening supply and demand conditions contributed broadly equally to the contraction of credit in the bust period such that neither demand nor