Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?

Michal Brzoza-Brzezina, Tomasz Chmielewski and Joanna Niedźwiedzińska

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we ask a question about the impact of monetary policy on total bank lending in the presence of a developed market for foreign currency denominated loans and potential substitutability between domestic and foreign currency loans. Our results, based on a panel of three biggest Central European countries (the Czech Republic, Hungary and Poland) confirm the existence of the substitution effect between these loans. Restrictive monetary policy leads to a decrease in domestic currency lending but simultaneously accelerates foreign currency denominated loans. This makes the central bank's job harder with respect to providing both, monetary and financial stability.

Keywords: domestic and foreign currency loans; substitution; monetary policy; financial stability; Central Europe (search for similar items in EconPapers)
JEL-codes: E58 E52 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac, nep-mon and nep-tra
Date: 2007
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http://mpra.ub.uni-muenchen.de/6759/ orginal version
http://mpra.ub.uni-muenchen.de/6879/ revised version

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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:6759

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