This paper analyses the importance of ECB monetary policy shocks in the domestic activities of a non-EMU member, Croatia, with the main focus on the inflation rate. Using a Vector Autoregressive Model with an exogenous variable specification, it is found that the contraction of foreign monetary shocks have a significant positive impact on the local inflation rate and output. Interestingly, the interest rate gap exerts a statistically significant effect on the economic activities of Croatia, suggesting that targeting exchange rate stability does not eliminate the significance of ECB's monetary policy changes.
|Journal||Global Economy Journal|
|State||Published - 1 Jan 2017|