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The effects of EU shocks on the newly acceded countries

  • Alina Barnett

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

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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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. 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.
  2. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers.
  3. Peter Benczur & Attila Ratfai, 2010. "Economic fluctuations in Central and Eastern Europe: the facts," Applied Economics, Taylor & Francis Journals, vol. 42(25), pages 3279-3292.
  4. 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.
  5. Tamim Bayoumi, 1991. "The Effect of the ERMon Participating Economies," IMF Working Papers 91/86, International Monetary Fund.
  6. 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.
  7. Canova, Fabio, 2003. "The Transmission of US Shocks to Latin America," CEPR Discussion Papers 3963, C.E.P.R. Discussion Papers.
  8. Gert Peersman & Roland Straub, 2009. "Technology Shocks And Robust Sign Restrictions In A Euro Area Svar," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 727-750, 08.
  9. Stefan Gerlach & Frank Smets, 1995. "The monetary transmission mechanism: Evidence from the G-7 countries," BIS Working Papers 26, Bank for International Settlements.
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