A Brand New CROLEI: Do We Need a New Forecasting Index?

The aim of this paper is to determine whether the existing leading indicators system CROLEI (CROatian Leading Economic Indicators) and its derivative, the CROLEI forecasting index, predict overall Croatian economic activity reliably. The need to evaluate the CROLEI system and the index stems from the modification of the barometric method on which the system and the index are founded on in its application in Croatia. The evaluation of the forecasting power involved the construction of six alternative forecasting indices, which not only challenge the original CROLEI index, but also enable comparisons of forecasting power. The construction of the alternative forecasting indices is also based on the barometric method. The authors then proceed to adjust more complex measurements i.e. forecasting power evaluation matrix, in order to obtain credible forecasting power estimates. Forecasting power is also estimated using two regression models that allow for the forecasting of reference series and yield measurements of forecasting power. The results of both approaches indicate not only that the original CROLEI has by far the greatest forecasting power, but also that it is able to predict the turning points in the economic cycle with the highest probability.CROLEI (CROatian Leading Economic Indicators), forecasting indicator,barometric method, signaling method

Broadband speed and firm entry in digitally intensive sectors: The case of Croatia

We explore how improvements in digital infrastructure contribute to digital transformation of the Croatian economy. More specifically, we investigate under what conditions improvements in broadband speed are conductive for firm entry in digitally intensive sectors at the local level (cities and municipalities; LGUs) during the period 2014–2017. The results of the benchmark random effects panel data model suggest a 10 percent increase in broadband speed increases the number of new digitally intensive firms by 0.68. Two-way interactions between explanatory variables suggest improvements in broadband infrastructure yield the greatest number of new firm entries in densely populated LGUs, and in LGUs with a higher quality of human capital and greater public investment in physical infrastructure. Using the spatial Durbin panel method, we find improvements in broadband infrastructure exhibit positive firm entry effects both within and between cities and municipalities

The Effect of Tourism Activity on Housing Affordability

Although researchers have confirmed the impact of tourism on housing prices in many destinations affected with overtourism, they do not consider housing affordability in relation to the population’s income levels. This study explores the relationship between tourism activity and housing affordability, using a sample of Croatian municipalities. Specifically, the study investigates how tourist accommodation, concentration, seasonality and overall vulnerability to tourism influence housing affordability in this emerging tourism-driven European country. The results obtained reveal tourism intensification’s deteriorating effect on local residents’ abilities to afford housing. The findings indicate a particularly strong tourism seasonality impact, suggesting the presence of common negative externalities, such as employment fluctuations, difficulties in maintaining economic status, and revenue instabilities, in localities prone to seasonal tourism fluctuations

House price determinants in transition and EU-15 countries

This article studies house price developments in six European countries: Croatia, Estonia, Poland, Ireland, Spain and the United Kingdom. The main goal is to explore the factors driving the rise of house prices in transition countries. Because house price increases in the last two decades are not peculiar to transition countries, the analysis is extended to three EU-15 countries that have recorded house price rises. The similarities and differences between the two groups of countries in terms of house price determinants can thus be explored. In the first part of the empirical analysis VAR is employed to detect how GDP, housing loans, interest rates and construction contribute to real house price variance. In the second part of the analysis multiple regression models are estimated. The results of both methods suggest that the driving forces behind house price inflation in both groups of countries are very similar and encompass the combined influence of house price persistence, income and interest rates.

The Nonlinear House Price Adjustment Process in Developed and Transition Countries

We use a nonlinear framework in order to explore house price determinants and their adjustment properties. We test for threshold cointegration using a sample of four developed countries (the United States, the United Kingdom, Spain, and Ireland) and four transition countries (Bulgaria, Croatia, the Czech Republic, and Estonia). All eight countries experienced an intensive increase in house prices during the 1990s and the first half of this decade. In addition to testing for nonlinearities, we focus on house price determinants in these four transition countries of Central and Eastern Europe. An asymmetric house price adjustment is present in all transition countries and the U.S., while no threshold effects are detected in developed European countries. In a threshold error correction framework, house prices are aligned with the fundamentals; but house price persistence coupled with a slow and asymmetric house price adjustment process might have facilitated the house price boom in transition countries and the U.S.house prices, threshold cointegration, asymmetric adjustment, transition

Ciklicki prilagodeni proracunski saldo: primjer Hrvatske

Cyclically adjusted government budget balance has often been used in the evaluation of fiscal stance. It indicates how much room fiscal authorities have to act anticyclically. The main idea is to separate temporary (cyclical) effects on the budget from those caused by discretionary measures of fiscal authorities. In this paper, after reviewing the concept, its applications and various methodological approaches, the size of cyclically adjusted budget balance is estimated in the case of Croatia for the period 1995:1q-2008:3q. Thereby, the ECB methodology is implemented and it is assumed that cyclically sensitive budget elements include income tax, profit tax, VAT, excise duties, social security contributions and unemployment benefits. The elasticities of cyclically sensitive budget components, with respect to their macroeconomic bases, are calculated with an error-correction model. The results of the exercise indicate that both periods of pro- and anticyclical fiscal policies have been present in the analyzed period with the restrictive and procyclical policy prevailing in the recent years.fiscal policy, government budget, cyclical adjustment, Croatia