Monetary Policy under Dollarisation: The Case of Croatia

Evan Kraft ()
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Evan Kraft: Research Department, Croatian National Bank, Trg Burze 3, 10002 Zagreb, Croatia.

Comparative Economic Studies, 2003, vol. 45, issue 3, 256-277

Abstract: Despite almost 10 years of low inflation, Croatia continues to experience high levels of dollarisation/‘euroisation’. Roughly, three-quarters of bank deposits and currency in circulation are held in foreign currency. This limits the manoeuvering room for monetary policy. Banks try to avoid balance sheet mismatches by indexing lending to the exchange rate, but this creates credit risk. In addition, strong currency depreciation could lead to flight from the currency, and inflation pass-through, while apparently moderate in recent years, could easily become a problem. Policy options, including adopting the Euro as the official currency, inflation targeting, and the present policy of a limited dirty float, are discussed. Comparative Economic Studies (2003) 45, 256–277. doi:10.1057/palgrave.ces.8100023

Date: 2003
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