Substitution Between Domestic and Foreign Currency Loans in Central Europe. Do Central Banks Matter?

Brzoza-Brzezina, Michal; Chmielewski, Tomasz; Niedźwiedzińska, Joanna

doi:10.2139/ssrn.1593646

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Substitution Between Domestic and Foreign Currency Loans in Central Europe. Do Central Banks Matter?

ECB Working Paper No. 1187

38 Pages Posted: 14 May 2010

See all articles by Michal Brzoza-Brzezina

Michal Brzoza-Brzezina

National Bank of Poland; Warsaw School of Economics (SGH)

Joanna Niedźwiedzińska

National Bank of Poland

Date Written: April 21, 2010

Abstract

In this paper we analyse the impact of monetary policy on total bank lending in the presence of a developed market for foreign currency denominated loans and potential substitutability between domestic and foreign currency loans. Our results, based on a panel of four biggest Central European countries (the Czech Republic, Hungary, Poland and Slovakia) confirm significant and probably strong substitution between these loans. Restrictive monetary policy leads to a decrease in domestic currency lending but simultaneously accelerates foreign currency denominated loans. This makes the central bank’s job harder.

Keywords: Domestic and Foreign Currency Loans, Substitution, Monetary Policy, Central Europe

JEL Classification: E44, E52, E58

Suggested Citation: Suggested Citation

Brzoza-Brzezina, Michal and Chmielewski, Tomasz and Niedźwiedzińska, Joanna, Substitution Between Domestic and Foreign Currency Loans in Central Europe. Do Central Banks Matter? (April 21, 2010). ECB Working Paper No. 1187, Available at SSRN: https://ssrn.com/abstract=1593646 or http://dx.doi.org/10.2139/ssrn.1593646