Macroeconomic consequences of the war in Ukraine on Central and Eastern European economies: a SVAR analysis

Macroeconomic Consequences of the War in Ukraine on Central and Eastern European Economies: A SVAR Analysis

In this article we examine the theory of Purchasing Power Parity (PPP) on a sample of Central and Eastern European economies. This article makes two main advances with respect to previous PPP studies. First, it employs a monthly database on real exchange rates for a panel of 12 Central and Eastern European economies by testing the theory separately with respect to the US dollar and to the euro for the period January 1994 to December 2008. Second, we utilize, among other panel unit root tests, the panel Seemingly Unrelated Regressions Augmented Dickey–Fuller (SURADF) test proposed by Breuer et al. (2002), which allows us to identify how many and which members of the panel contain a unit root. As our study found support for the validity of PPP in some reforming European economies, special attention should be devoted to individual country-specific factors that cause PPP deviations.

Driving industrial and economic growth in Central and Eastern Europe: The role of electricity infrastructure and renewable energy

This paper links global value chain (GVC) integration and operations of multinational enterprises (MNEs) in the context of host economies upgrading. Economic upgrading is referred to as higher exported value added that has been generated in the domestic economy as a result of foreign direct investment (FDI). Particular attention is paid to the impact of GVC on selected Central and Eastern European (CEE) economies. An econometric model is estimated using panel data of 44 sectors for four CEE economies over the period 1995–2018. A primary source of data is the latest edition of the TiVA (Trade in Value Added). The most important variable in explaining domestic contribution to GVC was the flow of foreign inputs. Backward linkages are crucial for building the GVC presence of the economies. The variables of interest – FDI stocks and flows – have in general a negative impact on the level of domestic content in analysed economies.

Central and Eastern European Economies and the War in Ukraine

We propose to apply a time-series-based nonlinear mechanism in the threshold autoregression (TAR) form in order to examine business cycles in Central and Eastern European economies and compare them to the entire EU business cycle. The threshold variables, such as consumer price index, short and long interest rates, unemployment rate and an exchange rate vs. the U.S. Dollar, have been considered. The purpose of the paper is to model and to predict business cycles in Central and East European (CEE) economies (the EU Member States) and compare them to business cycles of the entire EU28 area and Eurozone EU19. We found that the exogenous mechanism played an important role in diagnosing the phases of business cycles in CEE economies, which is in line with the entire EU economic area. The results of business cycle forecasting using bootstrap technique are quite promising, while bootstrap confidence intervals are used for diagnosis.

In this article, we study the shift from manual to cognitive work in 10 Central and Eastern European economies. While highlighting the growth in the non-routine cognitive component of jobs, we pay particular attention to the increase in routine cognitive tasks, a trend distinguishing Central and Eastern European economies from the most advanced economies. We find that in all countries routine cognitive tasks were most common in the middle of wage distribution, but increasingly rare among the top earners. We identify two groups of workers whose jobs depend most on performing routine cognitive tasks: medium-skilled men in the manufacturing sectors and medium-skilled women in the service sectors, who jointly represent 33 per cent of Central and Eastern European workers. Should technological progress reduce demand for routine work in Central and Eastern Europe, a large proportion of workers would be affected and wage inequality would rise. We conclude with the policy implications of our findings.

The question of the validity of the Purchasing Power Parity (PPP) hypothesis in European transition countries remains relevant and empirically unsettled. This article aims to contribute to this debate by using an updated monthly database on real exchange rates for 12 Central and Eastern European economies. We implemented a range of panel unit root tests characterized by the rejection of the cross-sectional independence hypothesis and taking the US Dollar (USD) and the euro as numeraire currencies separately into account in the testing procedures. The results reported in this study provide additional evidence supporting the PPP proposition.

The article focuses on the relationship between economic growth and financial intermediation, with special focus on the process of catching up in three Central and Eastern European economies: Hungary, the Czech Republic and Poland (CEC-3). The depth of financial intermediation and economic growth exhibit a close, direct relationship with each other. According to recent studies the relationship is causal and the level of financial development is a good indicator of future economic growth. Examining the relationship between the two factors is especially important for these Central and Eastern European economies, where the level of financial intermediation is very low compared to that of developed countries. The lack of financial deepening is even more pronounced taking into consideration that there is a significant catching-up process in every other areas of the economy. The initial proposition here is that in order to these countries catching up, their economic growth must necessarily be accompanied by a marked financial deepening, without which long-term economic growth is impossible. It is absolutely necessary that in the future the role of bank loans in these economies increases significantly and that a period characterised by a lending boom follows. The lending boom should occur in CEC-3 is not an unequivocal sign of imprudent lending or a supply-side expansion of bank loans - on the contrary, it should be viewed as complementary to the economic development at the given economic stage.

This study contributes to the purchasing power parity (PPP) literature in two ways. First, in order to circumvent the pitfalls of linear specifications in testing the behaviour of exchange rates, we apply a nonlinear unit root test based on the exponential smooth transition autoregressive model. Second, we test the PPP theory for a class of ten Central Eastern European economies comprising the period from January 2001 to December 2016. The results of unit root tests imply that the null hypothesis of non-stationarity of real exchange rates cannot be rejected for the whole period. Our fragmentary evidence on PPP is reduced to individual subsamples for a small number of Central Eastern European countries. The weak evidence on PPP, found in this study, suggests that the process of real integration of Central and Eastern European economies and the subsequent price convergence among European markets remains incomplete.

(2007). Globalization and the Integration-Assisted Transition in Central and Eastern European Economies. Journal of Economic Issues: Vol. 41, Papers From The 2007 AFEE Meeting, pp. 427-434.

We study the impact of exchange rate misalignment on economic activity in nine Central and Eastern European economies. Exchange rate misalignments are computed from country-specific long-run exchange rate relationships with determinants suggested by open macroeconomic models such as interest rate differentials or the Balassa–Samuelson effect. There was a clear reduction in misalignments, but this has been reversed to some extent after 2008. Exchange rate overvaluation has a negative impact on economic activity. The effect of misalignments on economic activity seems to be nonlinear, as overvaluation has a stronger effect than undervaluation. Other factors of economic activity, including institutions, also show nonlinear effects.

Analysis into the sources of lower levels of national productivities between Central and Eastern European economies and the European Union is scarce and lacks comparability. These sources are assessed by analysing the role played by sectoral structures. After providing a brief overview of comparative levels of economy-wide labour productivity between the EU-15 average, selected EU cohesion countries and the EU accession countries of Estonia, Poland, the Czech and Slovak Republics, Hungary and Slovenia, a quantitative account of the sectoral content of the national productivity gap is calculated. The paper develops a method to calculate the explanatory power of patterns of sectoral structures for the size of the productivity gap by hypothetically applying average EU-15 sectoral patterns on Central and Eastern European economies’ sectoral productivities. Subsequently, the respective roles of individual sectors in explaining the national productivity gaps are calculated by assigning weights to sectoral productivity gaps relative to their employment shares. These results are then carefully assessed in terms of potentials and prospects for swift and complete productivity catch-up and in terms of the most efficient policies to assist productivity convergence.

The article develops a model of exchange rate regime choice centered on the tradeoff between internal price stability and external competitiveness. The model allows for institutional costs of altering exchange rate arrangements. The main implication of the model is a nonlinear relationship between the rate of inflation and the choice of regime for the next period. The model also suggests that a major inflationary shock, like the one to which all Central and Eastern European economies were subject when they allowed prices to be determined by the market, should give rise to a tightening of the exchange rate regime, followed by a gradual introduction of more flexibility as inflation subsides. A series of regressions on a sample of thirteen Central and Eastern European economies yield results consistent with the hypothesis.

ABSTRACTThis paper investigates how oil price changes affect consumer price inflation in eleven Central and Eastern European countries. We use a wavelet-based Markov switching approach in order to distinguish between the effects at different time horizons. We find that the transmission of oil price changes to inflation is relatively low in the Central and Eastern European countries as an increase in the oil price of 100% is followed by a rise in inflation of 1–6 percentage points. The strongest impact from rising oil price on inflation is found for the longer time-horizons for most of the countries, which means that the indirect spillover effect is more intensive than the direct one. Also, the results indicate that exchange rate is not a significant factor when oil shocks are transmitted towards inflation, except in the occasions when high depreciation occurs. Slovakia and Bulgaria are the countries which experience the highest and most consistent pass-through effect throughout the observed sample, and this may be due to these countries having some of the highest oil import/GDP ratios.