It is well known that retail trade is one of the most important parts of any economy.
Retail trade is also a very important component of GDP, whereby rising retail trade
means a growth in consumption and a fall in unemployment. Therefore, policy makers
must be able to recognise how changes in economic variables affect changes in
retail trade. The main goal of this paper is to analyse the effects of changes in retail
prices, net wages and short-term interest rate on nominal retail trade in Croatia using
the bounds testing (ARDL) approach for cointegration. The results indicate the existence
of a stable cointegration relationship between the variables. In the long-run, an
increase in retail prices and short-term interest rate leads to a reduction in nominal
retail trade while an increase in net wages boosts an increase in nominal retail trade.
In the short-run, a positive change in retail prices has a positive effect on the change
in nominal retail trade while positive changes in net wages and short-term interest
rate have negative effects on nominal retail trade.