The Master's Thesis aims to conduct an econometric analysis of the competitiveness and wealth effects in a small open economy with high foreign currency exposure in the case of the Republic of Croatia. On the one hand, according to economic theory, an increase in the real exchange rate, namely real depreciation, along with Marshall - Lerner 's condition positively affects net exports and economic growth through competitiveness effect. On the other hand, the impact of real depreciation on personal consumption and economic growth through wealth effect depends on the level of currency exposure of the country. The currency exposure is defined as the ratio of the level of assets and liabilities denominated in domestic and foreign currency. In the case of high foreign currency exposure, where liabilities denominated in foreign currency are greater than total private wealth, as in the Republic of Croatia, it is expected that real depreciation will negatively affect personal consumption and thus reduce economic growth. To conduct an empirical analysis of the competitiveness and wealth effects, Johansen's cointegration approach is used and three long-run models are estimated. In the first model, the competitiveness effect is assessed by analysing the long-run relationship of the real exchange rate and net exports of goods. The results of the first model point to the existence of one cointegration relation among the variables and to the positive impact of real exchange rate depreciation on net exports in the long-run. In the second model, the impact of real exchange rate depreciation on the external debt is examined. The results also point to the existence of one cointegration relation among the variables and the long-run positive impact of real exchange rate depreciation on external debt. Furthermore, the third model examines the relationship between net wealth and personal consumption in the long-run. The results point to the existence of one cointegration relation between the variables and the positive long-run relationship between the net wealth and personal consumption. Finally, the results of the econometric analysis indicate that in the case of real exchange rate depreciation the negative wealth effect could crowd out the positive competitiveness effect, which could consequently lead to a reduction in economic growth. Since the Republic of Croatia is highly currency exposed, it is not advisable to conduct real exchange rate depreciation not only due to negative wealth effect on the economy, but also due to its impact on the effective monetary policy of the Croatian National Bank, taking into account the successful long-term achievement of the primary goal, ie, price stability and consequently the financial stability in the country.