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

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

In this paper we analyse 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 four biggest Central European countries (the Czech Republic, Hungary, Poland and Slovakia) confirm significant and probably strong substitution 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. JEL Classification: E44, E52, E58

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Paper provided by European Central Bank in its series Working Paper Series with number 1187.

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Date of creation: May 2010
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Handle: RePEc:ecb:ecbwps:20101187
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