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

Author

Listed:
  • Davor Kunovac

    (The Croatian National Bank, Croatia)

  • Nina Pavić

    (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.

Suggested Citation

  • Davor Kunovac & Nina Pavić, 2017. "Can the Adoption of the Euro in Croatia Reduce the Cost of Borrowing?," Surveys 28, The Croatian National Bank, Croatia.
    • Handle: RePEc:hnb:survey:28
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    File URL: http://www.hnb.hr/repec/hnb/survey/pdf/s-028.pdf
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    References listed on IDEAS

    as
    1. Ante Žigman & Boris Cota, 2011. "The impact of fiscal policy on government bond spreads in emerging markets," Financial Theory and Practice, Institute of Public Finance, vol. 35(4), pages 385-412.
    2. Ms. Edda Zoli, 2013. "Italian Sovereign Spreads: Their Determinants and Pass-through to Bank Funding Costs and Lending Conditions," IMF Working Papers 2013/084, International Monetary Fund.
    3. Mr. Johannes Wiegand, 2017. "The Re-Emerging Privilege of Euro Area Membership," IMF Working Papers 2017/162, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Maja Bukovšak & Gorana Lukinić Čardić & Nina Pavić, 2020. "Structure of capital flows and exchange rate: the case of Croatia," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(1), pages 113-146, February.

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    More about this item

    Keywords

    euro; borrowing costs; CDS premium; credit rating; Croatia;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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