Original scientific paper

MEASURING AND PREDICTING CURRENCY DISTURBANCES IN CROATIA: THE "SIGNALS" APPROACH

Amina Ahec-Šonje
Ante Babić

Abstract

This paper examines the two currency disturbances that took place
in Croatia, one at the beginning of 1999 and the other in the summer of 2001. The "signals" approach is used in constructing an effective system of early warning indicators heralding currency disturbances. This system monitors the behavior of various macroeconomic and financial variables that tend to exhibit an unusual behavior in the periods preceding a disturbance or crisis. The paper also proposes composite leading indicators comprising the best signal indicators. The performance of the indicators reveals that the two disturbances were different: the 1999 one came at the end of a banking crisis, while the 2001 disturbance was brought about by a combination of the domestic monetary relaxation and partial capital account liberalization. Since Croatia signed a Stabilization and Association Agreement with the EU that foresees further capital account liberalization, this system of early warning indicators can help the Croatian National Bank and other relevant policymakers along the way.

Keywords

Hrčak ID:

6530

URI

https://hrcak.srce.hr/6530

Publication date:

15.4.2003.

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