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International Spillovers from Euro Area Monetary Policy to Advanced Small Open Economies: Investment Behavior of Czech Firms

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  • Volha Audzei
  • Michal Franta

Abstract

The paper examines international spillovers of euro area (EA) monetary policy to the real economy of an advanced small open economy with a high degree of credit euroization and close trade links with the EA. We focus on Czechia, as it has a similar degree of trade and financial integration with the EA as the rest of the non-EA countries in the region. Based on firm-level data and high-frequency identified monetary policy shocks, we assess the channels of EA monetary policy spillovers. More precisely, we estimate the responses of investment by Czech firms to EA monetary policy shocks using panel local projections and compare the responses for various groups of firms. The results suggest the presence of the trade channel of spillover transmission. Some evidence is found for the balance sheet channel. The foreign currency borrowing cost channel is detected after 2014, suggesting that the high degree of credit euroization in Czechia has altered the transmission of spillovers of EA monetary policy. Importantly, the overall spillovers from the EA have weakened significantly since 2014.

Suggested Citation

  • Volha Audzei & Michal Franta, 2026. "International Spillovers from Euro Area Monetary Policy to Advanced Small Open Economies: Investment Behavior of Czech Firms," Working Papers 2026/05, Czech National Bank, Research and Statistics Department.
    • Handle: RePEc:cnb:wpaper:2026/05
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    References listed on IDEAS

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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