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Economic Spillovers from the Euro Area to the CESEE Region via the Financial Channel: A GVAR Approach

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In this paper we examine the spillovers of a shock to real output in the euro area to Central, Eastern and Southeastern Europe (CESEE) and its subregions Central Europe, Southeastern Europe, Russia, and the other members of the Commonwealth of Independent States (CIS). To this effect, we apply a global vector autoregressive (GVAR) model and go beyond existing work by examining the relative importance of the financial channel compared with the trade channel. Moreover, we assume that shocks spill over from the euro area to the CESEE region via the financial channel whereas financial spillovers within CESEE are negligible (except for spillovers between Russia and the other CESEE countries, which we do capture). Our results are as follows: We find spillovers transmitted via the trade channel to be larger than spillovers via the financial channel for Southeastern Europe, but smaller for Russia and the other CIS countries. For Central Europe, the two channels have a broadly similar impact. When we assess the relative importance of the two channels based on how well they explain historical movements in the data we see that spillovers via the two channels have indeed been of equal importance for Central Europe. However, the financial channel has traditionally dominated the trade channel in Southeastern Europe, whereas the trade channel has traditionally played a stronger role for the CIS region. Overall spillovers reflecting both transmission channels are comparatively more moderate for Central Europe and Russia, while they are a bit larger for Southeastern Europe and considerably higher for the CIS region excluding Russia: The long-run effect of a +1% euro area output shock ranges from 0.3% in Central Europe and Russia to 0.7% in the other CIS countries.

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  • Peter Backé & Martin Feldkircher & Tomáš Slacík, 2013. "Economic Spillovers from the Euro Area to the CESEE Region via the Financial Channel: A GVAR Approach," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 50-64.
    • Handle: RePEc:onb:oenbfi:y:2013:i:4:b:1
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    Cited by:

    1. Jakšić Saša, 2022. "Modelling Determinants of Inflation in CESEE Countries: Global Vector Autoregressive Approach," Review of Economic Perspectives, Sciendo, vol. 22(2), pages 137-169, June.
    2. Hajek, Jan & Horvath, Roman, 2018. "International spillovers of (un)conventional monetary policy: The effect of the ECB and the US Fed on non-euro EU countries," Economic Systems, Elsevier, vol. 42(1), pages 91-105.
    3. Potjagailo, Galina, 2017. "Spillover effects from Euro area monetary policy across Europe: A factor-augmented VAR approach," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 127-147.
    4. McQuade, Peter & Falagiarda, Matteo & Tirpák, Marcel, 2015. "Spillovers from the ECB's non-standard monetary policies on non-euro area EU countries: evidence from an event-study analysis," Working Paper Series 1869, European Central Bank.
    5. Feldkircher, Martin, 2015. "A global macro model for emerging Europe," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 706-726.
    6. Fadejeva, Ludmila & Feldkircher, Martin & Reininger, Thomas, 2017. "International spillovers from Euro area and US credit and demand shocks: A focus on emerging Europe," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 1-25.
    7. Keppel, Catherine & Prettner, Klaus, 2015. "How interdependent are Eastern European economies and the Euro area?," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 18-31.
    8. Potjagailo, Galina, 2016. "Spillover effects from euro area monetary policy across the EU: A factor-augmented VAR approach," Kiel Working Papers 2033, Kiel Institute for the World Economy (IfW Kiel).
    9. Ludmila Fadejeva & Martin Feldkircher & Thomas Reininger, 2014. "International Transmission of Credit Shocks: Evidence from Global Vector Autoregression Model," Working Papers 2014/05, Latvijas Banka.
    10. Anna Sznajderska, 2019. "The role of China in the world economy: evidence from a global VAR model," Applied Economics, Taylor & Francis Journals, vol. 51(15), pages 1574-1587, March.
    11. Amat Adarov, 2022. "Financial cycles around the world," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3163-3201, July.
    12. Anna Sznajderska & Mariusz Kapuściński, 2019. "The spillover effects of Chinese economy on Southeast Asia and Oceania," NBP Working Papers 315, Narodowy Bank Polski.
    13. Jan Hájek & Roman Horváth, 2016. "The Spillover Effect of Euro Area on Central and Southeastern European Economies: A Global VAR Approach," Open Economies Review, Springer, vol. 27(2), pages 359-385, April.
    14. Tomáš Slacík & Katharina Steiner & Julia Wörz, 2014. "Can Trade Partners Help Better FORCEE the Future? Impact of Trade Linkages on Economic Growth Forecasts in Selected CESEE Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 36-56.
    15. Shakirudeen Taiwo & Josine Uwilingiye, 2023. "New evidence on sources of macroeconomic fluctuations in sub‐Saharan African countries," African Development Review, African Development Bank, vol. 35(2), pages 181-197, June.
    16. Feldkircher, Martin & Huber, Florian, 2016. "The international transmission of US shocks—Evidence from Bayesian global vector autoregressions," European Economic Review, Elsevier, vol. 81(C), pages 167-188.
    17. Benecká, Soňa & Fadejeva, Ludmila & Feldkircher, Martin, 2020. "The impact of euro Area monetary policy on Central and Eastern Europe," Journal of Policy Modeling, Elsevier, vol. 42(6), pages 1310-1333.

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    More about this item

    Keywords

    Financial shocks; international shock transmission; GVAR; CESEE;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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