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The Determinants of Financial Euroization in a Post-Transition Country: Do Threshold Effects Matter?

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Abstract

This paper investigates the long-run and short-run determinants of financial euroization (FE) using both linear and threshold models. We model deposit euroization (DE) and credit euroization (CE) in Croatia, a post-transition country recording very high and persistent unofficial FE. The results suggest that only the portfolio view is important for explaining DE and CE. The market failure view does not seem to matter for FE in Croatia. Both nominal and real exchange rate changes have a strong effect on FE in the long run; the former is more important for DE and the latter for CE. In the short and long run CE is also determined by matching behavior of banks’ foreign currency positions. Both DE and CE respond to changes in inflation and exchange rate volatility. Threshold cointegration confirms that FE determination is subject to significant threshold effects, while error correction models suggest that FE adjustment is very slow and asymmetric, partly due to very strong FE persistence.

Suggested Citation

  • Marijana Ivanov & Marina Tkalec & Maruška Vizek, 2011. "The Determinants of Financial Euroization in a Post-Transition Country: Do Threshold Effects Matter?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(3), pages 230-251, July.
  • Handle: RePEc:fau:fauart:v:61:y:2011:i:3:p:230-251
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    Citations

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    Cited by:

    1. Marina Tkalec, 2013. "The Dynamics of Deposit Euroization in European Post-Transition Countries: Evidence from Threshold VAR," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 66-83.
    2. repec:taf:applec:v:50:y:2018:i:5:p:559-573 is not listed on IDEAS
    3. Petr Vanek & Petr Korab, 2018. "Determinants of Deposit and Credit Euroization in Eastern Europe: A Bayesian Model Averaging Evidence," MENDELU Working Papers in Business and Economics 2018-73, Mendel University in Brno, Faculty of Business and Economics.
    4. repec:iez:survey:ces-v19_1-2017_palic-posedelsimovic-vizek is not listed on IDEAS
    5. Marina Tkalec, 2013. "Monetary Determinants of Deposit Euroization in European Post-Transition Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 89-101, March.
    6. RNuket Kirci Cevik & Sel Dibooglu & Ali M. Kutan, 2016. "Real and Financial Sector Studies in Central and Eastern Europe: A Review," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 2-31, February.
    7. Marina Tkalec & Miroslav Verbič, 2013. "A new look into the prevalence of balance sheet or competitiveness effect of exchange rate depreciation in a highly euroised economy," Post-Communist Economies, Taylor & Francis Journals, vol. 25(2), pages 225-240, June.

    More about this item

    Keywords

    financial euroization; transition; cointegration; threshold;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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