engleski

MONETARY POLICY STRATEGIES AND FINANCIAL STABILITY – THE CASE OF CEE COUNTRIES

Due to more frequent financial imbalances in last decade, central bank’s monetary strategies have implicitly been changing, modifying their final target, not being just price stability, but also financial stability. Strategy of monetary policy is defined as the choice of monetary policy instruments which through the choice of operational and intermediate target enables accomplishing the final target(s). Monetary policy strategies of Central and East European countries, considering the characteristics of their financial system, were oriented toward more unorthodox instruments. Central banks of Central and East European countries (CEE countries according to OECD classification) emphasized the role of prudential policy. Beside interest rate, they were also using different prudential instruments (loan classification and provisioning rules, capital requirements, eligibility criteria and collateral rules, net open FX position limits), other monetary measures (reserve requirements) and monetary controls (and marginal reserve requirements based on credit growth, ), in order to impede the development of credit growth and to hamper unwinding of financial imbalances. Moreover, CEE countries were also using the same instruments in order to stabilize the financial system in current financial crises. In addition, strategies of CEE countries differ among themselves, considering the choice of intermediate target, being either inflation targeting or exchange rate targeting. Moreover they differ in the choice of abovementioned monetary measures, prudential instruments and monetary controls. This dissertation analyzes monetary strategies of chosen Central and East European Countries and their effectiveness in accomplishing financial stability. Moreover, monetary strategy is considered in broader way, taking into consideration, not just the intermediate and final target, but prudential instruments, monetary measures and monetary controls as well. This dissertation will analyze whether there is difference in using prudential instruments considering the intermediate target in CEE countries i.e. were the countries targeting exchange rate more prone in using prudential instruments and monetary controls than countries targeting inflation. Furthermore, this paper will, using dynamic panel model, analyze effectiveness of abovementioned measures on financial stability, which is, according to bank oriented financial systems of CEE countries, defined as banking sector stability.

monetary policy strategy; prudential policy; monetary measures and controls; financial stability; CEE countries

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