Use and Limitations of the Reserve Requirement Policy in Montenegro
Since reserve requirement is the only monetary policy instrument used in Montenegro, it has been subject to frequent amendments since the global crisis outbreak. The analysis of the monetary demand model showed that there is an active transmission mechanism of change in the reserve requirement rate on the deposits trend reflects on lending activity. Also, there is a significant impact of FDIs on deposits trending in the banking system, as well as the positive impact of turnover on stock exchange on the deposits and loans trend. Finally, it was found that the financial crisis has caused negative trends in loans and deposits. On the other hand, the impact of changes in the reserve requirement on the economic activity in Montenegro could not be determined. This is primarily due to the fact that the transmission mechanism of the effect of reserve requirement on economic activity is too long to be able to estimate the model that does not allow the dynamics of the independent variables. The second reason is that industrial output index is only an indirect indicator of the economic activity.
Volume (Year): 3 (2014)
Issue (Month): 2 ()
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