Publication detail

How Important Are Foreign Shocks in Small Open Economy? The Case of Slovakia

Author(s): prof. Roman Horváth Ph.D.,
PhDr. Marek Rusnák M.A., Ph.D.,
Type: IES Working Papers
Year: 2008
Number: 21
Published in: IES Working Papers 21/2008
Publishing place: Prague
Keywords: small open economy, foreign shocks, monetary policy, Slovakia, euro area
JEL codes: E58, F41, F42
Suggested Citation: Horváth, R., Rusnák, M. (2008). “ How Important Are Foreign Shocks in Small Open Economy? The Case of Slovakia ” IES Working Paper 21/2008. IES FSV. Charles University.
Abstract: In this paper, we provide evidence on the nature and the relative importance of domestic and foreign shocks in Slovak economy based on block-restriction vector autoregression model in 1999-2007. We document well-functioning monetary transmission mechanism in Slovakia. Subject to various sensitivity checks, we find that contractionary monetary policy shock has a temporary negative effect on the degree of economic activity and price level. We find that using output gap instead of GDP alleviates the price puzzle. In general, prices are driven mainly by foreign factors and the European Central Bank monetary policy shock on Slovak prices is more powerful than that of the National Bank of Slovakia. Slovak central bank interest rate policy seems to follow the ECB’s interest rates. On the other hand, spectacular Slovak economic growth is primarily driven by domestic factors suggesting the positive role of recently undertaken Slovak economic reforms.
Downloadable: WP 2008_21_Horvath, Rusnak


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