Abstract
We use the global vector autoregression model to examine macroeconomic spillovers within the European Union over the period 2000-2014. We investigate how shocks originating in the euro area affect output and prices in the rest of Europe. We examine four different policy relevant shock scenarios: (i) increase in the euro area interest rate; (ii) increase in the euro area industrial production; (iii) decrease in the euro area consumer prices and (iv) decrease in global oil prices. In general, we find that these shocks have an effect of same (and expected) sign but of different size across the European Union. Our results suggest that the response of Central European countries to the euro area shocks is almost as strong as the response of the euro area countries itself. On the other hand, our results indicate that South East Europe is somewhat less sensitive to the euro area shocks and oil price shocks.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Feldkircher (2015) uses data in 1995-2011, while we use data in 2000-2014, i.e. we cover the period of global financial crisis more fully and avoid data from the 1990s, which was a rather turbulent period in CEE and SEE marked by many structural breaks.
In a similar fashion, Backe et al. (2013) investigate economic spillovers from the euro area to Central, Eastern and Southeastern Europe via the financial channel. For Central Europe, financial channel has a broadly similar impact as the trade channel. When it comes to Southeastern Europe, they find financial channel to be of slightly higher importance than the trade channel.
Real exchange rate was used as foreign variable only for US while oil prices were used as global variable for both US and EA.
See Feenstra et al. (2015).
References
Babecka-Kucharcukova O, Babecky J, Raiser M (2012) International Trade in South-Eastern Europe and the Commonwealth of Independent States: The role of Geography, Policy and Institutions. Open Econ Rev 23(2):277–301
Babecka-Kucharcukova O, Claeys P, Vasicek B (2014) Spillover of the ECBs Monetary Policy Outside the Euro Area: How Different is Conventional From Unconventional Policy? Czech National Bank Working Paper, No. 15
Backe P, Feldkircher M, Slacik T (2013) Economic spillovers from the euro area to the CESEE region via the financial channel: a GVAR approach. Focus on Euro Econ Integration 4:50–64
Benkovskis Ks, Bessonovs A, Feldkircher M, Worz J (2011) The transmission of euro area monetary shocks to the Czech Republic, Poland and Hungary: evidence from a FAVAR model. Focus on Euro Econ Integration 3:8–36
Bussiere M, Fidrmuc J, Schnatz B (2008) EU Enlargement and Trade Integration: Lessons from a Gravity Model. Rev Dev Econ 12(3):562–576
Bernanke BS, Boivin J, Eliasz P (2005) Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach. Q J Econ 120(1):387–422
Canova F (2005) The Transmission of US Shocks to Latin America. J Appl Econ 20:229–251
Cashin P, Mohaddes K, Raissi M, Raissi M (2014) The differential effects of oil demand and supply shocks on the global economy. Energy Econ 44(C):113–134
Dees S, di Mauro F, Pesaran MH, Smith LV (2007a) Exploring the international linkages of the euro area: a global VAR analysis. J Appl Econ 22(1):1–38
Egert B, MacDonald R (2009) Monetary Transmission Mechanism in Central and Eastern Europe: Surveying the Surveyable. J Econ Surv 23(2):277–327
Eichler S, Karmann A (2011) Optimum Currency Areas in Emerging Market Regions: Evidence Based on the Symmetry of Economic Shocks. Open Econ Rev 22 (5):935–954
Feenstra RC, Inklaar R, Timmer MP (2015) The Next Generation of the Penn World Table. American Economic Review forthcoming
Feldkircher M (2015) A global macro model for emerging Europe. Journal of Comparative Economics, forthcoming
Galesi A, Lombardi MJ (2013) External shocks and international inflation linkages. In: Fillippo di M, Hashem Pesaran M (eds) The GVAR Handbook: Structure and Applications of a Macro Model of the Global Economy for Policy Analysis, Oxford University Press, 2013, pp. 255-270
Horvath R, Rusnak M (2009) How important are foreign shocks in small open economy? The case of Slovakia. Glob Econ J 9(1)
Jimenez-Rodriguez R, Morales-Zumaquero A, Balazs E (2010) The varying effect of foreign shocks in Central and Eastern Europe. J Policy Model 32:461–477
Kim S (2001) International Transmission of U.S. Monetary Policy Shocks: Evidence from VARs. J Monet Econ 48:339–372
Kim S, Roubini N (2000) Exchange Rate Anomalies in the Industrial Countries: A Solution with a Structural VAR Approach. J Monet Econ 45:561–586
Kozluk T, Mehrotra A (2009) The Impact of Chinese Monetary Policy Shocks on East and South-East Asia. Econ Transit 17(1):121–145
Mackowiak B (2006a) What does the Bank of Japan do to East Asia J Int Econ 70(1):253–270
Mackowiak B (2006b) How much of the macroeconomic variation in Eastern Europe is attributable to external shocks Comp Econ Stud 48(3):423–544
Mojon B, Peersman G (2001) A VAR Description of the Effects of Monetary Policy in Individual Countries of the Euro Area. ECB Working Paper, No. 92
Mumtaz H, Surico P (2009) The Transmission of International Shocks: A Factor-Augmented VAR Approach. Money Credit Bank 41(1):71–100
Peersman G (2004) The Transmission of Monetary Policy in the Euro Area: Are the Effects Different Across Countries Oxf Bull Econ Stat 663:285–308
Pesaran MH, Shin Y (1998) Generalized impulse response analysis in linear multivariate models. Econ Lett 58(1):17–29
Pesaran MH, Schuermann T, Weiner SM (2004) Modeling regional interdependencies using a global error-correcting macroeconometric model. J Bus Econ Stat 22:129–162
Pesaran MH, Schuermann T, Smith LV (2007) What if the UK or Sweden had joined the euro in 1999? An empirical evaluation using a global VAR. Int J of Finance and Econ 12(1):55–87
Prettner C, Prettner K (2014) How interdependent are Eastern European economies and the Euro area? CEGE Discussion Papers, No. 187
Rusnak M, Havranek T, Horvath R (2013) How to solve the price puzzle? A meta-analysis. J Money Credit Bank 45(1):37–70
Svensson LEO, van Wijnbergen S (1989) Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances. Econ J R Econ Soc 99(397):785–805
Tervala J (2010) The International Transmission of Monetary Policy in a Dollar Pricing Model. Open Econ Rev 21(5):629–654
Acknowledgments
We thank the anonymous referee, Christina Strobach, George Tavlas and seminar participants at INFER Workshop on The European Integration and Its International Dimension (Cologne, Germany) for helpful comments. Hajek has been supported by the Grant Agency of the Charles University, no. 238515. Horvath appreciates the support from the Grant Agency of the Czech Republic, no. P402/12/G097. The views do not represent the official position of Czech National Bank.
Author information
Authors and Affiliations
Corresponding author
Appendix
Appendix
Rights and permissions
About this article
Cite this article
Hájek, J., Horváth, R. The Spillover Effect of Euro Area on Central and Southeastern European Economies: A Global VAR Approach. Open Econ Rev 27, 359–385 (2016). https://doi.org/10.1007/s11079-015-9378-4
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11079-015-9378-4
Keywords
- Global VAR
- Monetary policy
- International transmission of shocks
- Euro area
- Central and Southeastern Europe
- Foreign shocks