Raphael Auer, Simon Wehrmüller, 20 April 2009

Western bank exposures in Eastern Europe are an issue that is increasingly in policymakers’ sights. This column estimates the losses arising to the non-bank sector and government from foreign currency-denominated debt in Central and Eastern Europe. It also estimates the effect that these losses have had on the market-implied assessment of sovereign default risk. Both losses are reflected in wider CDS spreads, but government losses have a bigger impact.

Raphael Auer, Martin Brown, Andreas Fischer, Marcel Peter, 29 January 2009

Some policymakers are worried that Central and Eastern European firms and households that recently joined the carry trade are unprepared for the financial crisis’s macroeconomic shocks. This column presents micro-level evidence that the currency exposure is concentrated in households and firms that are better equipped to bear the risks, suggesting that aggregate risks may be smaller than feared.

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CEPR Policy Research