Croatian Economic Survey, No. 5, 2003.
Original scientific paper
THE OPENNESS OF THE COUNTRY, CURRENCY SUBSTITUTION AND MONETARY POLICY
Velimir Šonje
Abstract
The paper discusses the impact of the openness of a country and currency substitution, both important features of the Croatian economic and monetary system, on monetary policy. The author claims that standard macroeconomic models tend to overlook the presence of currency substitution and, consequently, result in
misguided monetary policy recommendations. He argues that
the openness of a country and the size of currency substitution
affect the ratio of international reserves to the reserve money and can seriously limit monetary policy since open countries with high currency substitution will normally be more sensitive to international capital flows and foreign exchange fluctuations.
Keywords
Hrčak ID:
6348
URI
Publication date:
15.4.2003.
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