engleski

Asset Price Boom/Bust, Credit Cycles and Financial Stability

Boom and bust in asset prices accompanied with large increase of private sector ineptness often lead to periods of financial instability. Moreover, current global financial crisis can be accounted among crisis largely connected to the asset markets. There is a large number of empirical researches that explain the connection between asset price movements, credit cycles and financial stability in developed countries but those concentrating on transitional countries are rare. Nevertheless, we can document a large increase of asset prices in a number of transitional countries undergoing financial liberalization. The scope of this paper is to find empirical evidence of the importance of asset prices for achieving financial stability in Croatia. Starting from theoretical assumptions, an analysis of Croatian stock and real estate markets will be conducted. The results of empirical research into the link between changes in asset markets and credit cycles and the importance and usefulness of asset prices for achieving financial stability is discussed. As a result of this research, recommendations are made for policy makers to use in their future actions.

asset prices ; credit cycles ; financial stability

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