engleski

The analysis of monetary transmission mechanism in Croatia using cointegration approach

Monetary transmission relates monetary policy and real economic variables using different channels. In this paper, authors analyze monetary transmission in Croatia from 1998 to 2009 including the impact of euro area income. Direct channel, interest rate channel and exchange rate channel are discussed. The effectiveness of monetary transmission channels in Croatia is examined using cointegration approach. Firstly, characteristics of monetary transmission in Croatia, as well as in euro area, are described. Then, authors list existing econometric analyses of monetary transmission channels. Expected effects of selected transmission channels according to economic theory and relevant empirical research are stated. After that, data and methods used are discussed. The analysis of interest rate, exchange rate, money supply and income time series is conducted. Moreover, euro area income time series is included in cointegration analysis. Then, Augmented Dickey Fuller (ADF) Unit Root Test is used to test the order of integration of mentioned economic time series. ADF tests show the stationarity of time series in first differences. Since time series are integrated of order one, cointegration approach is used to examine effects of interest rate, exchange rate, money supply and euro area income on Croatian income. Cointegrating relations, i.e. long run relationships are found among selected variables and income. Error correction model is defined. The innovation analysis, i.e. variance decomposition and impulse response function analysis is done. Cointegration analysis has shown that mentioned monetary transmission channels are significant in the long run, as well as the effect of euro area income on Croatian income. The article concludes by the comparison of monetary transmission in Croatia with empirical findings and theoretical background. Finally, limitations of this research and perspective for future studies are discussed.

vector autoregression; cointegration approach; monetary transmission; direct channel; interest

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