The Effects of EU Shocks on the Macrovariables of the Newly Acceded Countries -A Sign Restriction Approach

This paper analyses the response of seven of the newly acceded countries (NACs)to EU supply and monetary shocks. A typical NAC perceives an EU technology disturbance as a positive supply shock and an EU monetary expansion as a negative demand shock. When we split the seven countries into two groups, results for group one which includes the Czech Republic, Hungary, Poland and Slovakia suggest that an EU supply shock feeds through as a demand shock, increasing both prices and output. This hints that trade acts as a strong channel of EU shock propagation. For both groups, monetary disturbances explain a large proportion of NAC’s output fluctuation while technology disturbances account for a significant part of export variations. EU shocks are identified as in Canova and De Nicol´o (2002) using sign restrictions of the cross-correlation function of the variables’ responses to orthogonal disturbances. These restrictions are derived from an SDGE model