Recent empirical research has attributed cross-country differences in aggregate total factor productivity (TFP) to differences in the productivity distribution across firms within narrowly defined industries. In particular, Hsieh and Klenow (2009) argue that greater within-industry productivity dispersion in China and India relative to the U.S. reveals a severe misallocation of resources in these countries. The wider productivity dispersion may stem from distorted prices faced by individual producers as in Restuccia and Rogerson (2008) but also from distortions on firm entry and exit.
This paper analyses the mechanisms of monetary transmission in Croatia. Monetary transmission is a system of functionally related variables explaining the influences that changes in money supply and money demand have on non-monetary variables. The primary element of monetary transmission is a shock to monetary equilibrium caused by changes in money supply which are the result of different measures in monetary policy or changes in money demand. Its final element is the re-establishing of monetary equilibrium through prices and real variables, which affects the national product (Baleti?, 2004).
The study of monetary transmission is of great importance for monetary authorities since a good knowledge of its characteristics allows them to stabilise unfavourable economic fluctuations in an efficient way and in due time as well as to favourably affect prices and the real activity. Furthermore, an insight into monetary transmission enables them to anticipate the effects of monetary policy measures, which is indispensable for implementing the inflation targeting regime introduced by several transition countries (the Czech Republic, Slovakia, Hungary and Romania).
The recent global financial crisis has revealed the limits of standing macroeconomic policy frameworks that rely on monetary and fiscal policies alone. These policies moderated business cycles and kept inflation low and stable, but they were unable to prevent a massive build-up of systemic financial risk and, ultimately, a deep and prolonged global recession (Blanchard and others, 2010).
