engleski

Tackling Financial Services Reform in Transition Countries: The Case of Croatia

Monetary policy of a transition country that wants to accede to the EU/EMU to a large extent will be determined by its final goal-entry into the past. Remarkable stability of both the exchange rate and prices has been achieved since the stabilisation in 1993. In the second part, the paper looks at the necessary convergence that must be achieved if Croatia wants to join the EU and the EMU in this decade. One obvious problem that Croatian monetary authorities face is a very high level of euroization, i.e. balance sheet problem, which prevents the monetary policy from being fully effective if it predominantly relies on the "usual" transmission mechanism, i.e. the interest rate channel of the monetary policy. Therefore, in Croatia, no matter what framework of the monetary policy will prevail during the accession process, exchange rate will have to stay in focus of monetary policy. The entry into the ERM II, if it remains with wide corridor, as is now the case, will not influence the exchange rate policy directly, but the credibility effect might be substantial. The path of the exchange rate fulfilling of the Maastricht inflation criterion might become a very difficult task for the Croatian economy, while the exchange rate risk would be transferred from micro, to the macro, or BOP level.

monetary/exchange rate policy; EU/EMU

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