Determinants of financial euroisation in a small open economy: The case of Serbia

Abstract

This paper examines the phenomenon of financial euroisation in Serbia, focusing on the liability side of the banking system. A time series model is estimated and evaluated using a monthly data sample from January 2007 to January 2016 for Serbia. The results of this paper show that the mean pattern of financial euroisation in Serbia is determined by the exchange rate, inflation, and the interest rate differential. Financial euroisation in Serbia is found to be volatile and to exhibit a clustering pattern. Of the estimated and tested models the ARCH (1) model is found to be best suited to explain the volatile behaviour pattern of financial euroisation in Serbia.

Determinants of Current Account in Cases of Serbia and Romania: Time-Varying Parameters Approach

“…The estimated elasticity accounts for the net effect of the change in real effective exchange rate indicating that devaluation improves the Serbian current account. However, large portion of banking deposits in Serbia is linked to foreign currency (mainly euro) what makes financial system in Serbia highly eouroized (Bošnjak et al 2018b) and vulnerable to exchange rate fluctuations. Therefore, the fluctuation of Serbian currency is constrained.…”