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Contagion and interdependence among Central European economies: the impact of common external shocks

  • Sébastien Wälti



This paper is about contagion and interdependence among Central European economies. It investigates the extent to which country-specific shocks spread across these countries beyond the normal channels of interdependence, taking into account common external shocks. To model such shocks, we make use of market interest rates and more precise measures of the stance of U.S. monetary policy, the U.S. stock market and we control for the impact of the 1999 Brazilian crisis. The results show that common external shocks affect Central European economies to a significant extent. Moreover, the transmission mechanism of country-specific shocks changes in the face of abnormal high-volatility events. The existence of contagion and the effects of common external shocks have important implications for the candidate countries in the transition phase to the accession to EMU.

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Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 02-2003.

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Length: 27
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:gii:giihei:heiwp02-2003
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  1. Milesi-Ferretti, Gian Maria & Razin, Assaf, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," CEPR Discussion Papers 1921, C.E.P.R. Discussion Papers.
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  15. Raymond E. Owens & Roy H. Webb, 2001. "Using the federal funds futures market to predict monetary policy actions," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 69-77.
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