engleski

Influence of monetary policy shocks on Croatian banking sector

This paper tries to find out if the monetary policy shocks influence Croatian banking sector. In order to analyse the impact of structural shocks onto the real economy and feedback effects from banking sector onto the real economy we employ the unrestricted VAR. The analysis is based on a standard monetary VAR including variables real GDP, consumer prices and the 3-months interest rate augmented by a variable that represents the aggregate banking sector in Croatia. The effects of monetary policy shocks are estimated using an agnostic sign-restriction method proposed by Uhlig (2005). The sign restrictions are imposed on the contemporaneous and one-quarter ahead reactions of the variables except on the banking sector variable. The effects of a contractionary monetary policy shocks on banking sector variable are left agnostically open by design of the identification procedure, which is named “agnostic” for that reason, Uhlig (2005). Croatia is a small open economy with banking dominant financial sector and banking loans are dominant financial instrument. Assets of banking sector are predominately related to credit activities (76%) and, in accordance with asset structure, revenue structure of Croatian banking sector indicates that credit activities (interests from loans) are dominant revenue of banks in Croatia. Currently, Croatian banking sector consists of 34 banks. Six largest banks take on 82.2% of total assets of the banking sector. As for the ownership structure, banks in foreign ownership take on 90.6% of the assets of Croatian banking sector, and only 4.2% of the assets relates to state owned banks. The results of our study emphasize the importance of monetary policy for stability of Croatian banking sector as the effects of contractionary monetary policy shocks on credit risk are highly persistent even three years following the shock. This result indicates that contractionary monetary policy shocks worsen the stability of the banking sector.

monetary policy shocks; VAR; sign restriction

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