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The effect of foreign shocks in Central and Eastern Europe

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  • Jiménez-Rodríguez, Rebeca
  • Morales-Zumaquero, Amalia
  • Égert, Balázs

Abstract

This paper investigates the impact of international shocks - interest rate, commodity price and industrial production shocks - on key macroeconomic variables in ten Central and Eastern European (CEE) countries by using near-VAR models and monthly data from the early 1990s to 2009. In contrast to previous work, the empirical analysis takes explicit account of the possibility of (multiple) structural breaks in the underlying time series. We establish strong evidence of structural breaks, particularly along the years 2007 and 2008, suggesting the very relevant impact of the recent global crisis on CEE economies. Moreover, our results suggest that the way how countries react to world commodity price shocks is related to the underlying economic structure and the credibility of the monetary policy. We also find that some countries like Slovakia and Slovenia - already euro area members - react stronger to foreign industrial production shocks than other countries and that the responses to such shocks are strongly correlated for selected CEE countries. Nevertheless, our results also shed light on substantial differences in responses to foreign interest rate shocks that originate from the US or the euro area.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 32 (2010)
Issue (Month): 4 (July)
Pages: 461-477

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Handle: RePEc:eee:jpolmo:v:32:y::i:4:p:461-477

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Web page: http://www.elsevier.com/locate/inca/505735

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Keywords: Monetary policy Foreign shocks Multiple structural breaks Near-VAR model CEE economies;

References

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  1. Egert, Balazs & Crespo-Cuaresma, Jesus & Reininger, Thomas, 2007. "Interest rate pass-through in central and Eastern Europe: Reborn from ashes merely to pass away?," Journal of Policy Modeling, Elsevier, vol. 29(2), pages 209-225.
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Cited by:
  1. Andrea Bonilla, 2014. "External vulnerabilities and economic integration. Is the Union of South American Nations a promising project ?," Working Papers halshs-00945044, HAL.
  2. repec:onb:oenbwp:y:2011:i:3:b:1 is not listed on IDEAS
  3. Schnabl, Gunther & Ziegler, Christina, 2011. "Exchange rate and wage policies in Central and Eastern Europe," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 347-360, May.
  4. Konstantins Benkovskis & Andrejs Bessonovs & Martin Feldkircher & Julia Wörz, 2011. "The Transmission of Euro Area Monetary Shocks to the Czech Republic, Poland and Hungary: Evidence from a FAVAR Model," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 8-36.

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