Empirical analysis of monetary policy: croatia vs. Slovenia

This paper tries to explain empirical causation between the exports and the real exchange rate. The paper develops a simple model, the model is based on the relationship of exports to: real interest rates differential, foreign demand for domestic goods and real exchange rate. The paper then tests the model with the empirical data from Croatia and Slovenia. The empirical analysis in the paper finds: there is very limited relationship between real interest rates differentials, foreign demand and exports. However there is a strong relationship between exports and the real exchange rate. When empirically tested the model confirms the monetary policy of sliding exchange rate in Slovenia was vastly superior to the monetary policy of fixed exchange rate in Croatia .