Influence of different monetary regimes on financial stability in see countries

This paper aims to address different monetary regimes in SEE countries and its performances regarding financial stability in the context of the current financial crisis. SEE countries seem to have been more pre-crisis vulnerable to financial and real shocks. Five countries are observed in this paper – Serbia, Croatia, Montenegro, FYR Macedonia and Bulgaria. Nowadays international capital flows are very important in determining performances of different monetary regimes. It shows the level of financial integration which is important element of the Mundell-Fleming`s model and the related principle of impossible trinity. In today’s economy with most countries being financially integrated, they are moving to either pure float or monetary union, and analysis in the SEE region supported the bipolar view regarding the exchange rate regime. However, the emergence of the crisis has caused a significant drop in FDI in these countries. This once more highlights the standpoint that FDI can be described as a double-edge sward. The massive inflow of foreign capital that made the boom years possible is now the source of a very large problem for the region because this region is highly indebted externally. Authors try to find the best definition of systemic financial risk and financial (in)stability in order to consider the key aspects of macro prudential policymaking in the SEE region. Recommendation in the paper for all SEE economies is immediate adoption of the Basel III standards with the argument to give macro prudential policy mandate to an explicit authority to conduct efficient and timely decision making.