The VARying Effect of Foreign Shocks in Central and Eastern Europe

29 Pages Posted: 14 Jun 2010

See all articles by Rebeca Jiménez-Rodríguez

Rebeca Jiménez-Rodríguez

University of Salamanca - Department of Economics and Economic History

Amalia Morales-Zumaquero

University of Malaga - Departamento de Teoria e Historia Economica

Balázs Égert

Organization for Economic Co-Operation and Development (OECD); CESifo (Center for Economic Studies and Ifo Institute); Université Paris X Nanterre - Department of Economics; William Davidson Institute

Date Written: June 14, 2010

Abstract

This paper investigates the impact of international shocks – interest rate, commodity price and industrial production shocks – on key macroeconomic variables in ten Central and Eastern European (CEE) countries by using near-VAR models and monthly data from the early 1990s to 2009. In contrast to previous work, the empirical analysis takes explicit account of the possibility of (multiple) structural breaks in the underlying time series. We establish strong evidence of structural breaks, particularly along the years 2007 and 2008, suggesting the very relevant impact of the recent global crisis on CEE economies. Moreover, our results suggest that the way how countries react to world commodity price shocks is related to the underlying economic structure and the credibility of the monetary policy. We also find that some countries like Slovakia and Slovenia – already euro area members – react stronger to foreign industrial production shocks than other countries and that the responses to such shocks are strongly correlated for selected CEE countries. Nevertheless, our results also shed light on substantial differences in responses to foreign interest rate shocks that originate from the US or the euro area.

Keywords: monetary policy, foreign shocks, multiple structural breaks, near-VAR model, CEE economies

JEL Classification: E43, E50, E52, C22, O52

Suggested Citation

Jiménez-Rodríguez, Rebeca and Morales-Zumaquero, Amalia and Egert, Balazs, The VARying Effect of Foreign Shocks in Central and Eastern Europe (June 14, 2010). CESifo Working Paper Series No. 3080. Available at SSRN: https://ssrn.com/abstract=1624796

Rebeca Jiménez-Rodríguez (Contact Author)

University of Salamanca - Department of Economics and Economic History ( email )

Salamanca, 37008
Spain

Amalia Morales-Zumaquero

University of Malaga - Departamento de Teoria e Historia Economica ( email )

Malaga, Málaga 29004
Spain

Balazs Egert

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Université Paris X Nanterre - Department of Economics

Nanterre Cedex, 92001
France

William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

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