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Econometric Analysis of Croatia’s Proclaimed Foreign Exchange Rate

Author

Listed:
  • Mance Davor

    (Assistant University of Rijeka, Faculty of Economics)

  • Žiković Saša

    (Associate Professor, University of Rijeka, Faculty of Economics)

  • Mance Diana

    (Senior Assistant, University of Rijeka, School of Medicine)

Abstract

The officially proclaimed foreign exchange policy of the Croatian National Bank (CNB) is a managed float with a discretionary right of intervention on the Croatian kuna/euro foreign exchange (FX) market in order to maintain price stability. This paper examines the validity of three monetary policy hypotheses: the stability of the nominal exchange rate, the stability of exchange rate changes, and the exchange rate to inflation pass-through effect. The CNB claims a direct FX to inflation rate pass-through channel for which we find no evidence, but we find a strong link between FX rate changes and changes in M4, as well as between M4 changes and inflation. Changes in foreign investment Granger cause changes in monetary aggregates that further Granger cause inflation. Changes in FX rate Granger cause a reaction in M4 that indirectly Granger causes a further rise in inflation. Vector Autoregression Impulse Response Functions of changes in FX rate, M1, M4, and CPI confirm the Granger causalities in the established order.

Suggested Citation

  • Mance Davor & Žiković Saša & Mance Diana, 2015. "Econometric Analysis of Croatia’s Proclaimed Foreign Exchange Rate," South East European Journal of Economics and Business, Sciendo, vol. 10(1), pages 7-17, April.
    • Handle: RePEc:vrs:seejeb:v:10:y:2015:i:1:p:7-17:n:1
    DOI: 10.1515/jeb-2015-0001
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    Citations

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    Cited by:

    1. Bošnjak Mile & Kordić Gordana & Novak Ivan, 2021. "Real Effective Exchange Rate and Industrial Productivity in Croatia: Wavelet Coherence Analysis," South East European Journal of Economics and Business, Sciendo, vol. 16(1), pages 30-37, June.
    2. Tomasz Schabek & Bojana Olgiæ Draženoviæ & Davor Mance, 2019. "Reaction of Zagreb Stock Exchange CROBEX Index to macroeconomic announcements within a high frequency time interval," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(2), pages 741-758.
    3. Chafic Saliba & Panteha Farmanesh & Seyed Alireza Athari, 2023. "Does country risk impact the banking sectors’ non-performing loans? Evidence from BRICS emerging economies," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-30, December.
    4. Igor Živko & Mile Bošnjak, 2017. "Time Series Modeling of Inflation and its Volatility in Croatia," Notitia - journal for economic, business and social issues, Notitia Ltd., vol. 1(3), pages 1-10, December.
    5. Petrovska Magdalena & Tonovska Jasna & Nikolov Miso & Sulejmani Artan, 2022. "Evaluating Monetary Policy Effectiveness in North Macedonia: Evidence from a Bayesian Favar Framework," South East European Journal of Economics and Business, Sciendo, vol. 17(2), pages 67-82, December.
    6. Mance, Davor & Olgic Drazenovic, Bojana & Suljic Nikolaj, Stella, 2019. "Croatian Kuna: Money, Or Just A Currency? Evidence From The Interbank Market," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 10(2), pages 149-161.
    7. Bilas Vlatka & Bosnjak Mile & Novak Ivan, 2017. "Examining the Relationship between Financial Development and International Trade in Croatia," South East European Journal of Economics and Business, Sciendo, vol. 12(1), pages 80-88, April.

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