engleski

Reducing external indebtedness in the Croatian economy

There is a wide-spread belief in Croatia that the Croatian National Bank’s monetary policy is restrictive in order to maintain price stability and stable exchange rate. Such policy is accused of providing incentives for importing and for generating large external debt (due to relatively high domestic interest rate level) at the same time. The high external indebtedness and the constant foreign trade balance deficit make the sustainability and credibility of such policy highly questionable. The main goal of this work is to explore the possibility of reducing external indebtedness by using expansionary monetary policy as a substitute to the bank borrowing abroad which has been the main cause of the external debt growth recently. This implies testing weather the growth of the M1 money stock could lead to decline in the interest rates (the impact of liquidity effect). The previous in fact implies that the level of the interest rates is determined by money supply (the M1 money stock) rather than by the demand for money. Depending on the outcome of the research the authors will give their opinion on potential strong points and threats of the proposed change in the monetary policy considering the current economic policy in the country.

external indebtedness; interest rate level; expansionary monetary policy; liquidity effect

nije evidentirano