Monetary Policy versus Structural Reforms: The Case of Croatia

Over the course of the recession during the last six years, central bank officials in Croatia have on numerous occasions stated there is a strong need for structural reforms in Croatia and that there is no need for monetary policy reforms. This short paper investigates why the CNB is only demanding fiscal reforms (i.e. internal devaluation) and is not offering any monetary reforms (conventional or unconventional monetary policy responses). Over the course of the last 15 years CNB has caused several structural changes that lead to financial instability. This paper reviews three main structural changes initiated by the central bank, i.e. structural changes of: credit policy of the banking system, development in the external indebtedness and central bank independence. The modern monetary theories and new central bank strategies imposed new views on central bank policy measures. We suggest several financial sector and central banking reforms in Croatia, including accession of Croatia to SSM, the first pillar of EU banking union.