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Monetary Policy under Dollarisation: The Case of Croatia

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  • Evan Kraft

    () (Research Department, Croatian National Bank, Trg Burze 3, 10002 Zagreb, Croatia.)

Abstract

Despite almost 10 years of low inflation, Croatia continues to experience high levels of dollarisation/‘euroisation’. Roughly, three-quarters of bank deposits and currency in circulation are held in foreign currency. This limits the manoeuvering room for monetary policy. Banks try to avoid balance sheet mismatches by indexing lending to the exchange rate, but this creates credit risk. In addition, strong currency depreciation could lead to flight from the currency, and inflation pass-through, while apparently moderate in recent years, could easily become a problem. Policy options, including adopting the Euro as the official currency, inflation targeting, and the present policy of a limited dirty float, are discussed. Comparative Economic Studies (2003) 45, 256–277. doi:10.1057/palgrave.ces.8100023

Suggested Citation

  • Evan Kraft, 2003. "Monetary Policy under Dollarisation: The Case of Croatia," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 45(3), pages 256-277, September.
  • Handle: RePEc:pal:compes:v:45:y:2003:i:3:p:256-277
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    Citations

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    Cited by:

    1. Mathilde Maurel, 2004. "Financial Integration, Exchange Rate Regimes in CEECs, and joining the EMU : Just Do It," Working Papers hal-01065481, HAL.
    2. Dario Cziráky & Max Gillman, 2006. "Money Demand in an EU Accession Country: A VECM Study of Croatia," Bulletin of Economic Research, Wiley Blackwell, vol. 58(2), pages 105-127, April.
    3. Kraft, Evan & Galac, Tomislav, 2007. "Deposit interest rates, asset risk and bank failure in Croatia," Journal of Financial Stability, Elsevier, vol. 2(4), pages 312-336, March.
    4. Doris Ritzberger-Grünwald & Thomas Scheiber, 2012. "Euro Cash in Central, Eastern and Southeastern Europe," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 41-55.
    5. repec:onb:oenbwp:y::i:159:b:1 is not listed on IDEAS
    6. 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.
    7. Vlastimir Vukovic & Aleksandar Zdravkovic, 2011. "The Inflation and Exchange Rate in the Five Balkan Countries from Maastricht Convergence Criteria Prospect," Book Chapters, Institute of Economic Sciences.
    8. Maruška Vizek & Tanja Broz, 2009. "Modeling Inflation in Croatia," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 45(6), pages 87-98, November.
    9. Thomas Scheiber & Helmut Stix, 2009. "Euroization in Central, Eastern and Southeastern Europe – New Evidence On Its Extent and Some Evidence On Its Causes," Working Papers 159, Oesterreichische Nationalbank (Austrian Central Bank).
    10. Domagoj Sajter, 2015. "When Can We Call It “Extraordinary Circumstances”? Examination of Currency Exchange Rate Shocks," MIC 2015: Managing Sustainable Growth; Proceedings of the Joint International Conference, Portorož, Slovenia, 28–30 May 2015, University of Primorska, Faculty of Management Koper.
    11. Drazen Derado, 2009. "Financial Integration and Financial Crisis: Croatia Approaching The EMU," Financial Theory and Practice, Institute of Public Finance, vol. 33(3), pages 299-328.
    12. repec:spo:wpecon:info:hdl:2441/722 is not listed on IDEAS
    13. Luis A. Gil-Alana & Andrea Mervar & James E. Payne, 2017. "The stationarity of inflation in Croatia: anti-inflation stabilization program and the change in persistence," Economic Change and Restructuring, Springer, vol. 50(1), pages 45-58, February.
    14. Tomislav Galac, 2012. "Global Crisis and Credit Euroisation in Croatia," Working Papers 33, The Croatian National Bank, Croatia.
    15. Kraft, Evan & Jankov, Ljubinko, 2005. "Does speed kill? Lending booms and their consequences in Croatia," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 105-121, January.
    16. Petrevski, Goran & Exterkate, Peter & Tevdovski, Dragan & Bogoev, Jane, 2015. "The transmission of foreign shocks to South Eastern European economies: A Bayesian VAR approach," Economic Systems, Elsevier, vol. 39(4), pages 632-643.
    17. repec:onb:oenbwp:y:2008:i:1:b:1 is not listed on IDEAS
    18. Djula Borozan, 2011. "Granger causality and innovation accounting analysis of the monetary transmission mechanism in Croatia," Post-Communist Economies, Taylor & Francis Journals, vol. 23(4), pages 517-537, May.
    19. Lena Malesevic-Perovic, 2009. "Cointegration Approach to Analysing Inflation in Croatia," Financial Theory and Practice, Institute of Public Finance, vol. 33(2), pages 201-218.
    20. Goran Petrevski & Jane Bogoev & Dragan Tevdovski, 2015. "The transmission of foreign shocks to South Eastern European economies," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(4), pages 747-767, November.

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