Speaker
Description
This paper investigates the extent to which monetary policy decisions by the European Central Bank affect non-Eurozone EU members, in comparison to the actions of domestic central banks. More specifically, it focuses on the countries that neither use the euro, nor is their currency pegged to it, i.e., Poland, Hungary, Czechia, Romania, and Sweden (which I refer to as ‘periphery countries’). The study period spans from the January 2000 to December 2023. I construct a structural vector autoregression model (SVAR) for each of the five countries, which includes domestic production, inflation, and short-term interest rate, as well as the Euro Area short-term rate. The SVARs are identified via sign restrictions, through which I define four shocks, representing movements in supply, demand, domestic monetary policy, and foreign (ECB) monetary policy. I find that inflation in periphery countries responds more strongly to Euro Area monetary shocks than to domestic ones. Production, on the other hand, responds similarly to both monetary shocks, though the domestic one lasts somewhat longer across countries. Czechia, the country with the highest trade exposure to the Euro Area and the highest presence of Euro Area banks, demonstrates the strongest responses to Eurozone shocks. Sweden, which has the lowest trade and financial integration with the Euro Area, responds the weakest to its shocks.
