Sign restriction approach to macro stress-testing of the Croatian banking system
Nataša Erjavec, University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia
Boris Cota, University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia
Saša Jakšić, University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia
Abstract
The paper employs Uhlig’s sign restriction approach to stress-testing of the Croatian banking system. The analysis is based on a standard monetary VAR comprising real economic activity, inflation and short-term interest rates augmented by the ratio of non-performing loans or return on average equity, both measures representing the aggregate banking sector. In spite of the selected indicator, the results suggest a strong sensitivity of the Croatian banking sector to macroeconomic shocks. The effects are the strongest for contractionary monetary policy shocks, followed by negative demand shocks while the effects of supply shocks turned out to be statistically insignificant. Since Croatia is a small open economy with banking the dominant financial sector, the results obtained could be interesting for policy makers in Croatia and other transition economies with similar characteristics.
Keywords: sign restriction, macroeconomic shocks, Croatia
Year: 2012 | Volume: 36 | Issue: 4 | Pages: 395 - 412
Full text (PDF) | DOI: 10.3326/fintp/36.4.4 | E-mail this article | Download to citation manager | | December, 2012
IV / 2012 |
