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The Transmission of Euro Area Monetary Shocks to the Czech Republic, Poland and Hungary: Evidence from a FAVAR Model

Konstantins Benkovskis (), Andrejs Bessonovs, Martin Feldkircher and Julia Wörz ()
Additional contact information
Julia Wörz: Foreign Research Division, Oesterreichische Nationalbank, http://www.oenb.at

Authors registered in the RePEc Author Service: Julia Maria Woerz ()

Focus on European Economic Integration, 2011, issue 3, 8-36

Abstract: We analyze the effects of euro area monetary policy on three Central and Eastern European non-euro area EU countries: the Czech Republic, Poland and Hungary. We employ an open economy version of the factor-augmented vector autoregression model (FAVAR) to estimate the cross-border effects of a contractionary monetary policy of the ECB. We find significant and sizeable effects of euro area monetary policy in these small and highly open economies, with economic activity variables being primarily affected through the impact of increased interest rates and reduced foreign demand – thus leading to a contraction of GDP – and exchange rate effects being important for price reactions.

Keywords: FAVAR; monetary policy shocks; international transmission; euro area; Central and (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 E40 F42 (search for similar items in EconPapers)
Date: 2011
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