Can the Adoption of the Euro in Croatia Reduce the Cost of Borrowing?

Davor Kunovac () and Nina Pavić ()
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Davor Kunovac: The Croatian National Bank, Croatia
Nina Pavić: The Croatian National Bank, Croatia

No 28, Surveys from The Croatian National Bank, Croatia

Abstract: The paper analyses the impact of euro adoption on the reduction of borrowing costs of EU member states. The results of the analysis point to the existence of a "euro premium" – after controlling for the dynamics in the macroeconomic fundamentals of particular countries and the market sentiment, member states of the monetary union have, on average, lower borrowing costs and higher credit ratings than other EU member states. In order to draw attention to the significance that the results could have for bank interest rates in Croatia in the event of euro adoption, a simple VAR model is used to demonstrate that there is a statistically significant transmission of the changes in government borrowing costs to interest rates on bank loans.

Keywords: euro; borrowing costs; CDS premium; credit rating; Croatia (search for similar items in EconPapers)
JEL-codes: E42 F45 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2017-11
New Economics Papers: this item is included in nep-eec, nep-mac, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hnb:survey:28

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