Spillover Effects of Trade Shocks in the Central and Eastern European and Baltic Countries

How does a trade shock occurring in each Central and Eastern European and Baltic country affect the economic growth and inflation of other CEE-Baltic countries? This paper addresses this question by comparing the spillover effects of trade shocks using a global vector auto-regression model with 10 CEE-Baltic countries. In constructing the foreign variables, a time-varying trade weight is used instead of a fixed weight. Oil price is included as a global variable because of its importance to the countries in the region. The results demonstrate that the trade spillover effects are strong in the region and have a positive impact on economic growth and inflation in the region. However, the Czech Republic, Slovakia, and Poland play a greater role in this transmission process than the other countries.