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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)

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.

Suggested Citation

  • Alina Barnett, 2007. "The effects of EU shocks on the newly acceded countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(4), pages 389-404.
    • Handle: RePEc:ijf:ijfiec:v:12:y:2007:i:4:p:389-404
    DOI: 10.1002/ijfe.335
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    References listed on IDEAS

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