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Complementary to research on the importance of real convergence for a sustainable euro adopting process, this study analyzes the complexity of the mechanism by which credit growth may become a threat to meeting the inflation rate criterion. The added value of this approach consists of two elements. First, the analysis provides a quantitative mechanism for assessing the fundamental dependence of the output gap on credit development in the economy, econometric results of this study showing that about 15 percent of the credit flow is reflected in the deviation of economic growth from its potential level. Secondly, the study shows that macroprudential policy can contribute to meeting the price stability criterion, especially given that monetary policy instruments have limited effectiveness in countering excessive lending, econometric results showing that about 15 percent of the output gap changes into inflation in the new EU Member States. Thus, even if there are no financial stability indicators among the Maastricht criteria, at least the credit growth represents a macroprudential area with important implications on nominal convergence. [ABSTRACT FROM AUTHOR]

The study aims to investigate the mechanism by which lending to private sector may induce risks to the long-term interest rates convergence process in the new EU Member States. The added value of this approach consists of three elements. First of all, the analysis provides a quantitative mechanism for assessing the fundamental dependence of the bank portfolio quality to the dynamics of the credit accelerator, econometric results showing that about 30 percent of the squared change in the private sector credit flow is reflected in the jump of the rate of non-performing loans. Secondly, the study shows that sovereign risk premium is dependent on the stability of the banking system, considering that about 20 percent of the changes in the rate of non-performing loans are reflected in the level of the CDS rate. Third, empirical assessment highlights the importance of the sovereign risk premium transmission channel related to long-term interest rate, with approximately two thirds of the CDS rate contributing to the level of government bonds long-term yields. In this context, promoting a mix of macroeconomic policies oriented also to limiting the volatility of credit demand accompanied by poor multiplier effects in the economy becomes a fundamental requirement for ensuring a sustainable cost of financing long term public debt. [ABSTRACT FROM AUTHOR]

The study aims to investigate the impact of credit growth on the Maastricht criteria targeting process in the new member states of the European Union. The methodological framework is based on a two-compenent transmission mechanism represented by the output gap and the nonperforming loans. The empirical analysis consists of a set of simplified econometric models, built by panel estimates using annual data from 2000 to 2011. Statistical results revealed the existence of a reaction of long term interest rates to the developments in sovereign risk premium, determined, in turn, by the impact of the mutual reinforcing between lending rate and output gap on the loan portfolio quality dynamics. Strengthening prudential conduct of monetary policy with a conservative macro-prudential policy is a critical need for increased resilience of nominal convergence to exogenous shocks, given that containing the volatility of economic activity depends in a decisive way, on succeding to maintain credit growth levels close to economic growth potential. [ABSTRACT FROM AUTHOR]