Money and the Business Cycle of the East

The statement according to which the health of the real economy also depends on the sustainability of the nominal one, of money, is also valid in the East. Against this background, we are interested in exploring the role of the natural rate of interest in Central Banks’ management of the business cycle in this region. We specifically examine the “transformational recessions” experienced by Eastern European countries during their transition period. Our analysis reveals that business cycles in Eastern Europe closely followed the Austrian School’s model, characterised by optimistic expectations of future returns and easy credit conditions. This chapter provides a nuanced understanding of how monetary factors influence economic stability and business cycles in post-communist economies. We explore several key questions: What are the colours or the shades of the monetary policy in this perimeter with a coagulating flavour of sustainability? How would the emerging East fare in a suboptimal monetary union? And why would Eastern European countries want to adopt the euro?