The Czech experience with asset bubbles and financial crises

Every new financial crisis contains specific features that distinguish it f rom previous ones. The Czech experience of the past ten gears has not often been linked with the theory of asset bubbles although this phenomenon has received a lot of attention in economic literature recently This paper defi nes the role of asset bubbles in the Czech economy during its transformatio n. It elucidates the factors which make transition economies vulnerable to financial crisis and asset bubbles, arguing that such developments were not exclusively the result of the business cycle. Concentrating first on featu res common to all transition economies, the paper goes on to consider three categories of issues specific to the Czech Republic. As a result of these specific features, the business cycle in the Czech economy interacted with transitional waves and asset bubbles. Four lessons are therefore derived fr om the Czech experience with waves, cycles, and bubbles during its economic transformation.