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Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?

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  • Brzoza-Brzezina, Michał
  • Chmielewski, Tomasz
  • Niedźwiedzińska, Joanna

Abstract

In this paper we ask a question about the impact of monetary policy on total bank lending in the presence of a developed market for foreign currency denominated loans and potential substitutability between domestic and foreign currency loans. Our results, based on a panel of three biggest Central European countries (the Czech Republic, Hungary and Poland) confirm the existence of the substitution effect between these loans. Restrictive monetary policy leads to a decrease in domestic currency lending but simultaneously accelerates foreign currency denominated loans. This makes the central bank's job harder with respect to providing both, monetary and financial stability.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6759.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:6759

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Keywords: domestic and foreign currency loans; substitution; monetary policy; financial stability; Central Europe;

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