<abstract xmlns="http://www.w3.org/1999/xhtml"><p> 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.</p></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.

Econometric Analysis of Croatia’s Proclaimed Foreign Exchange Rate

Assistant University of Rijeka, Faculty of Economics

Associate Professor, University of Rijeka, Faculty of Economics

Senior Assistant, University of Rijeka, School of Medicine

South East European Journal of Economics and Business

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Econometric Analysis of Croatia\u2019s Proclaimed Foreign Exchange Rate"}

The officially proclaimed foreign exchange policy of the Croatian National Bank (CNB) is a managed float with a discretionary right of intervention on the...

Econometric Analysis of Croatia’s Proclaimed Foreign Exchange Rate

Published Online: Aug 04, 2015

Page range: 7 - 17

DOI: https://doi.org/10.1515/jeb-2015-0001

Keywords
central bank policies, monetary transmission effects, inflation targeting

© South East European Journal of Economics and Business

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Econometric Analysis of Croatia’s Proclaimed Foreign Exchange Rate

Published Online: Aug 04, 2015

Page range: 7 - 17

DOI: https://doi.org/10.1515/jeb-2015-0001

Keywordscentral bank policies, monetary transmission effects, inflation targeting

© South East European Journal of Economics and Business

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
central bank policies, monetary transmission effects, inflation targeting