engleski

Monetary transmission mechanism and behaviour of asset prices: the case of Croatia

Asset price channels have gained significant importance in the activity of the monetary transmission mechanism. Changes in the aggregate demand are determined by the movement of interest rates, but also by the movement of other prices such as stock prices, foreign exchange rates, prices of housing and land. As a result of the abundance of global liquidity, countries of the so-called emerging markets have recorded high rates of monetary growth as well as strong credit expansion for several years now. As a result of the effect of domestic and imported factors on the increase in liquidity, credit expansion acts as a trigger of money supply growth, and generator of increased spending and growing possibilities of savings and investments as a result of the wealth effect. Credit and monetary expansion increases demand for financial and non-financial forms of assets, which stimulates rises in asset prices. In the cause-effect relationship, the increase in the market value of assets used as collateral enables businesses or households to borrow more and results in the periods of continuous expansion of bank credits over the years. In circumstances where the goal of most central banks is oriented only toward maintaining the stability of prices defined in terms of consumer price indexes, the rise in asset prices (shares, commercial real estate, residential real estate etc.) can escape regulation of the central bank and institutions of prudential control for a long time, and can transmit effects on the rise in other prices, i.e. labour, utilities, etc. In such circumstances the credit channel of monetary transmission obtains special significance in the analysis of factors of destabilisation of the real economy.

Monetary Transmission Mechanism; Asset Prices; Behavioural Finance

nije evidentirano