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Examining the relationship between banking loans to private individuals growth rate and personal consumption growth rate in Croatia – the cointegration approach

Author

Listed:
  • Vlatka Bilas

    (Faculty of Economics and Business,University of Zagreb)

  • Mile BoÅ¡njak

    (SKDD - CCP Smart Clear, Inc., Zagreb)

Abstract

The main hypothesis of the paper states that banking loans to private individuals growth rate correlates with the personal consumption growth rate in Croatia. Following the Engle-Granger cointegration and Johansen cointegration approaches on yearly data samples from 1996 to 2012, we found banking loan to private individuals annual growth rate and personal consumption annual growth rate in Croatia were cointegrated. According to estimates, there is empirical evidence for statistically significant, long-run and short-run levels of banking loans to private individuals growth rate having an effect on the personal consumption growth rate in Croatia. Given the low competitiveness of the domestic economy, the research results raise questions regarding the sustainability of a banking business in Croatia which is mainly oriented toward lending to private individuals, and the potential need to update banking regulations in Croatia. We found evidence of debt-financed consumption. In addition, the research results further illustrate the sensitivity of cointegration methods to deviations from the pure unit-root assumption, since unit-root tests cannot easily distinguish between a unit root and close alternatives.

Suggested Citation

  • Vlatka Bilas & Mile BoÅ¡njak, 2015. "Examining the relationship between banking loans to private individuals growth rate and personal consumption growth rate in Croatia – the cointegration approach," Notitia - journal for economic, business and social issues, Notitia Ltd., vol. 1(1), pages 19-25, December.
    • Handle: RePEc:noa:journl:y:2015:i:1:p:19-25
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    References listed on IDEAS

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    Cited by:

    1. Bilas Vlatka & Bosnjak Mile & Novak Ivan, 2017. "Examining the Relationship between Financial Development and International Trade in Croatia," South East European Journal of Economics and Business, Sciendo, vol. 12(1), pages 80-88, April.

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    More about this item

    Keywords

    personal consumption; life-cycle hypothesis; banking loans; cointegration; Croatia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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