More than just supply and demand: Macroeconomic shock decomposition in Croatia during and after the transition period

Patrik Barišić, Tibor Kovač and Vladimir Arčabić

Structural Change and Economic Dynamics, 2023, vol. 67, issue C, 420-438

Abstract: This paper separates macroeconomic shocks into external and domestic aggregate demand and supply shocks in Croatia during and after the transition period using a Bayesian SVAR model. The standard decomposition into aggregate demand and supply shocks covers important information on external sources of economic fluctuations. We find that domestic shocks were a dominant source of fluctuations during the transition period from 1992 to 2000. External shocks increased their importance after 2000, becoming the dominant source of fluctuations with the Global financial crisis. International comparison with other EU post-transition countries shows that short run GDP fluctuations are best explained by domestic aggregate supply shocks in 9 out of 11 analyzed countries, including Croatia. However, in the medium run, GDP fluctuations are dominantly explained by external aggregate demand shocks in 8 out of 11 countries, including Croatia. Inflation in Croatia is driven by external shocks both in the short- and medium run.

Keywords: Small open economy; Post-transition countries; Aggregate supply and demand shocks; External and domestic shocks; Bayesian SVAR (search for similar items in EconPapers)
JEL-codes: C32 C51 E32 F41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:67:y:2023:i:c:p:420-438

DOI: 10.1016/j.strueco.2023.09.006

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