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Boom, Bust, Recovery Forensics of the Latvia Crisis
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Boom, Bust, Recovery Forensics of the Latvia Crisis

Olivier Blanchard, Mark Griffiths and Bertrand Gruss
Brookings Institution Press, 2013
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Editorial Rating

7

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  • Innovative

Recommendation

In the wake of the Great Recession, economists, politicians and pundits have battled over how to address weak growth and declining prospects: by stimulus or austerity? IMF economists Olivier Blanchard, Mark Griffiths and Bertrand Gruss delve into Latvia’s recent economic history to understand austerity’s role in the nation’s return to growth. Their findings may not settle the argument once and for all, but getAbstract recommends this well-reasoned, well-researched investigation to readers on both sides of the economic debate.

Take-Aways

  • To address a drop in GDP of 25% and to return to economic growth, Latvia opted in 2009 to impose severe austerity while refraining from external currency devaluation.
  • Despite the sharp slump and unemployment of more than 21% in 2010, by the beginning of 2013, Latvia’s GDP was up 18%, and joblessness had fallen to 11.4%.
  • But austerity isn’t the clear winner: Latvia’s economy was on the mend before authorities prescribed fiscal medicine, and the real cuts delivered ended up being much smaller than announced.

About the Authors

Olivier Blanchard is director of research at the IMF, where Bertrand Gruss is an economist. Mark Griffiths is the IMF’s Latvia mission chief.

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