Propagation of economic shocks from Russia and Western European countries to CEE-Baltic countries: a comparative analysis

Nazmus Khan ()

No 6517, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: What is the relative importance of Russia and Western European countries on Central and East European and Baltic (CEE-Baltic) countries? This paper tries to address this geo-politically important question by quantifying and comparing the spillover effects of a growth and trade shocks coming out of Russia and three major Western European countries (i.e. Germany, France and Italy) on ten CEE-Baltic countries. It uses a global vector autoregression (GVAR) model with quarterly data from 2003Q1-2015Q3. In constructing the foreign variables, a time varying trade weight is used instead of a fixed weight in order to take account of the financial crisis of 2007-08 and the recent economic sanctions on Russia. The results show that growth spillover effects are strong in the region. However, shocks to Russia have higher and persistent spillover effects on CEE-Baltic countries compared to shocks to Western European countries. Spillover effects of growth shocks also show that Russia is affected more by Western European countries than the other way round. Trade balance shocks on the other hand do not play an important role in this transmission process.

Keywords: economic growth; spillover e ects; global vector autoregression; Central and East European countries (search for similar items in EconPapers)
JEL-codes: C32 F43 O47 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2017-07
New Economics Papers: this item is included in nep-cis, nep-eec and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:cqe:wpaper:6517

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