engleski

The Credit Channell of the Transmission Mechanism in the Republic of Croatia

The influence of monetary trends on real movements is manifested through several channels of transmission mechanism. The interest rate channel, exchange rate channel and asset channel reflect broad spectrum of impacts, interrelations and opposite effects by which monetary expansion or restriction influence national economy. Credit channel of transmission mechanism represents indirect flow of these impacts. Its intensity and effectiveness is determined by existing monetary framework and whole macroeconomic environment as well as by the degree of the national financial system development. This paper’ s topic will be the analysis of the credit channel functioning in the Republic of Croatia in the period from gaining monetary independence until today. The analysis of economic consequences of the current banker’ s credit allocation system will be brought to special attention. The analysis shows quite clearly how much more banks prefer to grant credits to households than they do to business sector. Implications of these monetary-credit flows on economic activity in the Republic of Croatia can be observed on the strong growth of personal consumption component of the GDP as well as on growth of imports of goods and services. In this way, deformations in the financial funds allocation system and to them related crowding out effects (on the investments’ side) due to growth of personal and government consumption are mostly to blame for the insufficient growth of the private sector investments. This paper will examine if it’ s possible to use monetary credit mechanism in the above mentioned conditions to trigger economic growth, especially one based on growing investments and commodity exports as well as the reduction of external indebtedness. Starting hypotheses of this study are based on the opinion that the existing credit mechanism in the Republic of Croatia is not in function of economic growth and development sufficiently, i.e. the connection between monetary and real phenomenon of economy is not adequate. The purpose of this work is consequently to point out the necessity of greater affirmation in directing the credit mechanism and its effects on national economy but with preserving medium-term price stability as a structural category closely related to credit mechanism.

Transmission mechanism; Credit; National economy

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