Macroeconomic Policy and Outcomes in Poland and Latvia, 2007–2012 Poland and Latvia reacted differently to adverse demand shocks from outside and inside their economies. Panels (a) and (b) show that Poland pursued expansionary monetary policy, let its currency depreciate against the euro, and kept government spending on a stable growth path. Latvia maintained a fixed exchange rate with the euro and pursued an austerity approach with large government spending cuts from 2009 onward. Panel (c) shows that Poland escaped a recession, with positive growth in all years. In contrast, Latvia fell into a deep depression, and real GDP per capita fell 20% from its 2007 peak.

Sources: IMF, International Financial Statistics and World Economic Outlook. Exchange rates are 3-month moving averages; all other data are annual.