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Shocking Aspects Of Monetary Integration (Svar Approach)

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  • Rajmund MIRDALA

    ()
    (Technical University of Kosice, Faculty of Economics, Slovakia)

Abstract

One of the most challenging areas relating to the European Monetary Union (EMU) enlargement is the question of new member countries' vulnerability to exogenous shocks related to euro adoption. Even if well prepared, and also considering the business cycles of the EMU candidate countries became more correlated as the result of persisting convergence toward the old EU member countries, their real output will be still vulnerable to the exogenous structural disturbances. The responsiveness of the new EMU member countries' real output to the exogenous shocks may of course differ in intensity and durability. If we also assume a possibly low shocks correlation in these countries, the overall short-term wealth effect of the EMU membership may be rather low or even negative at all. In the paper we analyze the impact of three common exogenous structural shocks on the real output development in the new EMU member countries (Cyprus, Malta, the Slovak Republic and Slovenia) in the period 1999-2008 using SVAR (structural vector autoregression) approach. In order to meet this objective we decompose the variability of the real GDP in these countries to permanent and temporary shocks (we assume three types of shocks - nominal (liquidity), demand and supply shocks). Impulse-response functions will be also computed so that we can estimate the behaviour of the real output after structural one standard deviation innovations. The relevant outcomes of the analysis we compare with the results of the tests for the whole euro area (represented here by old EU member countries - EU-12 group). This approach helps us to understand the common as well as differing features of the real output determination in the new EMU member countries and old EU member countries.

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Bibliographic Info

Article provided by ASERS Publishing in its journal Journal of Applied Research in Finance.

Volume (Year): I (2009)
Issue (Month): 1 (June)
Pages: 52-62

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Handle: RePEc:srs:jarf12:5:v:1:y:2009:i:1:p:52-62

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Web page: http://www.cesmaa.eu/journals/jarf/index.php

Related research

Keywords: exogenous shocks; real output; structural vector autoregression; variance decomposition; impulse-response function;

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References

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  1. Richard Clarida & Jordi Gali, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," NBER Working Papers 4658, National Bureau of Economic Research, Inc.
  2. Stavarek, Daniel, 2008. "Exchange Market Pressure in Central European Countries from the Eurozone Membership Perspective," MPRA Paper 12079, University Library of Munich, Germany.
  3. Jaromír Šindel & Stanislav Šaroch, 2008. "The political economy of exchange rate policy in central and east european countries - sector approach," Politická ekonomie, University of Economics, Prague, University of Economics, Prague, vol. 2008(1), pages 17-39.
  4. Fidrmuc, Jarko & Korhonen, Iikka, 2003. "Similarity of supply and demand shocks between the euro area and the CEECs," Economic Systems, Elsevier, Elsevier, vol. 27(3), pages 313-334, September.
  5. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
  6. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  7. Agnieszka Stazka, 2006. "Sources of Real Exchange Rate Fluctuations in Central and Eastern Europe – Temporary or Permanent?," CESifo Working Paper Series, CESifo Group Munich 1876, CESifo Group Munich.
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Citations

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Cited by:
  1. Rajmund Mirdala, 2010. "Sources of Exchange Rate Dynamics in the European Transition Economies," Journal of Advanced Studies in Finance, ASERS Publishing, ASERS Publishing, vol. 0(1), pages 60-71, June.
  2. Rajmund MIRDALA, 2009. "Exchange Rate Pass-Through To Domestic Prices In The Central European Countries," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(3(9)_Fall).
  3. Rajmund Mirdala, 2009. "Interest Rate Transmission Mechanism of Monetary Policy in the Selected EMU Candidate Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 359-377, September.
  4. Mirdala, Rajmund, 2009. "Effects of Fiscal Policy Shocks in the European Transition Economies," MPRA Paper 19481, University Library of Munich, Germany.

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