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External Information and Monetary Policy Transmission in New EU Member States: Results from FAVAR Models

Author

Listed:
  • Zlatina Balabanova

    (Department of Economics, University of Konstanz, Germany)

  • Ralf Brüggemann

    (Department of Economics, University of Konstanz, Germany)

Abstract

We investigate the e_ects of monetary policy shocks in the new European Union member states Czech Republic, Hungary, Poland and Slovakia. In contrast to existing studies, we explicitly account for external developments in European Monetary Union (EMU) countries and in other acceding countries. We do so by using factor-augmented vector-autoregressive models that employ the information from non-stationary factor time series. One set of VAR models includes factors obtained from a large cross-section of time series from EMU countries, while another set includes factors obtained from other acceding countries. We use cohesion analysis to facilitate the interpretation of the different factor time series. We find that including the EMU factors does not greatly affect the impulse response patterns in acceding countries. In contrast, including factors from other accession countries leads to substantial changes in impulse responses and to economically more plausible results. Overall, our analysis highlights that taking into account external economic developments properly is crucial for the analysis of monetary policy in the new EU member states.

Suggested Citation

  • Zlatina Balabanova & Ralf Brüggemann, 2012. "External Information and Monetary Policy Transmission in New EU Member States: Results from FAVAR Models," Working Paper Series of the Department of Economics, University of Konstanz 2012-05, Department of Economics, University of Konstanz.
    • Handle: RePEc:knz:dpteco:1205
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    References listed on IDEAS

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    Cited by:

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    2. Petrevski, Goran & Exterkate, Peter & Tevdovski, Dragan & Bogoev, Jane, 2015. "The transmission of foreign shocks to South Eastern European economies: A Bayesian VAR approach," Economic Systems, Elsevier, vol. 39(4), pages 632-643.
    3. Goran Petrevski & Jane Bogoev & Dragan Tevdovski, 2015. "The transmission of foreign shocks to South Eastern European economies," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(4), pages 747-767, November.

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    More about this item

    Keywords

    Factor-augmented VARs; impulse-response analysis; monetary policy shocks; central and eastern European countries; European monetary union;
    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
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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