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The effects of EU shocks on the newly acceded countries

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  • Alina Barnett

    (Department of Economics, University of Warwick, Coventry CV4 7AL, UK)

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    Abstract

    This paper analyses the response of seven of the newly acceded countries (NACs) to EU supply and monetary shocks. A typical NAC perceives an EU technology disturbance as a negative supply shock and an EU monetary expansion as a negative demand shock. When we split the seven countries into two groups, results for group 1 which includes the Czech Republic, Hungary, Poland and Slovakia suggest that an EU supply shock feeds through as a demand shock, increasing both prices and output. This suggests trade acts as a channel of EU shock propagation. Monetary disturbances explain 2% and 3% of the output fluctuation of group one and two and 10% and 42% of interest rate variations, respectively. EU shocks are identified as given by Canova and De Nicoló (2002) using sign restrictions of the cross-correlation function of the variables' responses to orthogonal disturbances. These restrictions are derived from a DSGE model. Copyright © 2007 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/ijfe.335
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 12 (2007)
    Issue (Month): 4 ()
    Pages: 389-404

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    Handle: RePEc:ijf:ijfiec:v:12:y:2007:i:4:p:389-404

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    1. Fabio Canova, 2005. "The transmission of US shocks to Latin America," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 229-251.
    2. Canova, Fabio & de Nicolo, Gianni, 2003. "On the sources of business cycles in the G-7," Journal of International Economics, Elsevier, vol. 59(1), pages 77-100, January.
    3. Péter Benczúr & Attila Rátfai, 2005. "Economic Fluctuations in Central and Eastern Europe - the Facts," MNB Working Papers 2005/02, Magyar Nemzeti Bank (the central bank of Hungary).
    4. Stefan Gerlach & Frank Smets, 1995. "The monetary transmission mechanism: Evidence from the G-7 countries," BIS Working Papers 26, Bank for International Settlements.
    5. Tamim Bayoumi, 1992. "The Effect of the ERM on Participating Economies," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 330-356, June.
    6. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
    7. Uhlig, H.F.H.V.S., 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," Discussion Paper 1999-28, Tilburg University, Center for Economic Research.
    8. Peersman, Gert & Straub, Roland, 2004. "Technology shocks and robust sign restrictions in a euro area SVAR," Working Paper Series 0373, European Central Bank.
    9. Fidrmuc, Jarko & Korhonen, Iikka, 2003. "Similarity of supply and demand shocks between the euro area and the CEECs," Economic Systems, Elsevier, vol. 27(3), pages 313-334, September.
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