Improving the Resilience of Banking System in Small Open Economy: Is Macroprudential Policy Efficient?

Abstract

Research background: Although macroprudential instruments increase financial stability, it is necessary to test how they affect the overall economic recovery after a global financial crisis. In the post-crisis period, the real sector needed a strong injection of capital in order to be able to start recovery and to encourage economic growth. At the same time, most of the countries introduced strict regulatory measures that strengthen bank capital and the liquidity base. From the standpoint of the financial sector stability, these measures contributed to the overall financial stability, but at the same time, these measures hold up the bank credit activity. Purpose of the article: This paper analyses the impact of macroprudential instruments on the bank credit activity toward the non-financial sector. The analysis is made by using the Granger Causality Test and the ARLDS Bounds Test. Methods: The research was conducted for the period of 2000 – 2019, based on the data of the Croatian National Bank and the Croatian Bureau of Statistics using logarithmic quarterly data. The analysis is made by using the Granger Causality Test and the ARLDS Bounds Test. Findings & Value added: The results confirm the thesis that additional macroprudential measures decrease the bank credit activity toward the real sector, which slows down the real sector recovery and extends the downturn in the business cycle. On the other hand, the macroprudential measures increase the financial stability of the whole economy, which is positive for future investments and recovery of the real sector.

Confronting the Inflationary Pressures of Introducing the Euro with the Effects of Negative External Shocks

“…Based on expectations, economic entities make business and personal decisions and ultimately act as monetary regulators (Szyszko, 2015). The emerging market economies, due to the financial liberalization and changes in the economic and political system during the last two-three decades have faced strong inflationary pressures in the real estate sector (Popek Biškupec, Herman, 2021). Regime changes have affected changes in the behavioural styles of households and businesses to which regulators had not responded to quickly and effectively.…”