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The Transmission of Euro Area Monetary Shocks to the Czech Republic, Poland and Hungary: Evidence from a FAVAR Model

  • Konstantins Benkovskis

    ()

    (Latvijas Banka, Monetary Policy Department)

  • Andrejs Bessonovs

    ()

    (Latvijas Banka, Monetary Policy Department)

  • Martin Feldkircher

    ()

    (Oesterreichische Nationalbank, Foreign Research Division)

  • Julia Wörz

    ()

    (Foreign Research Division, Oesterreichische Nationalbank)

We analyze the effects of euro area monetary policy on three Central and Eastern European non-euro area EU countries: the Czech Republic, Poland and Hungary. We employ an open economy version of the factor-augmented vector autoregression model (FAVAR) to estimate the cross-border effects of a contractionary monetary policy of the ECB. We find significant and sizeable effects of euro area monetary policy in these small and highly open economies, with economic activity variables being primarily affected through the impact of increased interest rates and reduced foreign demand – thus leading to a contraction of GDP – and exchange rate effects being important for price reactions.

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File URL: http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/Focus-on-European-Economic-Integration/2011/Focus-on-European-Economic-Integration-Q3-11/chapters/feei_2011_q3_studies_01_tcm16-237365.pdf
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Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.

Volume (Year): (2011)
Issue (Month): 3 ()
Pages: 8-36

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Handle: RePEc:onb:oenbfi:y:2011:i:3:b:1
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