IS THERE A ROLE FOR MONETARY POLICY IN STABILIZING BANKING SECTOR SOUNDNESS AND LENDING?
IS THERE A ROLE FOR MONETARY POLICY IN STABILIZING BANKING SECTOR SOUNDNESS AND LENDING?

Summary/Abstract: Monetary policy solely is not effective in stabilizing lending and banking sector soundness and therefore has to be complemented by the macro-prudential measures. By estimating augmented Taylor interest policy rule, with case study for the Republic of Macedonia, this paper analyses how the monetary policy reacts to standard varia bles such as: inflation rate, real GDP, real effective exchange rate, foreign exchange reserves and banking sector soundness, for which benchmark variables such as: loans to GDP gap, non-performing loans ratio, capital buffer and interest rate differentials, are taken as variables. This paper considers, as well, how banking sector soundness is affected by changes of Central bank interest rate and interest differentials.

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