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The effects of prudential policy measures on financial stability in post-transition countries

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  • Mario Pecaric

    ()
    (University of Split, Faculty of Economics, Split, Croatia, University of Rijeka, Faculty of Economics, Rijeka, Croatia)

  • Josip Viskovic

    (University of Split, Faculty of Economics, Split, Croatia)

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    Abstract

    The empirical research of prudential measures effectiveness is still scarce, especially for central and southeast European countries. The aim of this paper is to analyze the effects of prudential policy on financial stability of post-transition bank-oriented countries using panel data analysis approach. Using the sample of central and southeast European countries for the period 1998 – 2010, we found that these measures generally reduce the level of non-performing loans, increase the level of profitability, partially affect banking system liquidity, but do not improve credit to deposit ratio. We point out two main conclusions: (1) prudential measures positively affect banking system stability expressed through financial stability indicators; (2) prudential measures represent important instrument of a central bank orchestra.

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    Bibliographic Info

    Article provided by University of Rijeka, Faculty of Economics in its journal Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics.

    Volume (Year): 31 (2013)
    Issue (Month): 1 ()
    Pages: 9-34

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    Handle: RePEc:rfe:zbefri:v:31:y:2013:i:1:p:9-34

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    Related research

    Keywords: prudential measures; monetary controls; financial stability; bank-oriented financial systems; panel data analysis;

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    References

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    1. Jan Frait & Zlatuse Komarkova, 2009. "Instruments for Curbing Fluctuations in Lending over the Business Cycle," Occasional Publications - Chapters in Edited Volumes, Czech National Bank, Research Department, in: CNB Financial Stability Report 2008/2009, chapter 0, pages 72-81 Czech National Bank, Research Department.
    2. Albert, Jose Ramon G. & Schou-Zibell, Lotte & Song, Lei Lei, 2012. "A Macroprudential Framework for Monitoring and Examining Financial Soundness," Discussion Papers, Philippine Institute for Development Studies DP 2012-22, Philippine Institute for Development Studies.
    3. Daniel C. Hardy & Ceyla Pazarbasioglu, 1999. "Determinants and Leading Indicators of Banking Crises: Further Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
    5. Lea Zicchino & Dimitrios Tsomocos & Miguel Segoviano & Charles Goodhart & Oriol Aspachs Bracon, 2006. "Searching for a Metric for Financial Stability," FMG Special Papers, Financial Markets Group sp167, Financial Markets Group.
    6. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
    7. Domac, Ilker & Martinez-Peria, Maria Soledad, 2000. "Banking crises and exchange rate regimes - Is there a link?," Policy Research Working Paper Series, The World Bank 2489, The World Bank.
    8. M S Mohanty & Philip Turner, 2008. "Monetary policy transmission in emerging market economies: what is new?," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 1-59 Bank for International Settlements.
    9. Cihák, Martin & Schaeck, Klaus, 2010. "How well do aggregate prudential ratios identify banking system problems?," Journal of Financial Stability, Elsevier, Elsevier, vol. 6(3), pages 130-144, September.
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