engleski

The analysis of the impact of macroeconomic shocks on Croatian economy using the SVAR methodology

The aim of this paper was to develop a statistical model that will be able to encompass the most important macroeconomic shocks that hit the Croatian economy in the last decade. Since Croatia is a small open economy (SOE), which is due to the economic structure largely dependent on the economic performance in the euro area, it is assumed that any significant change in the euro area would affect Croatian economy. Therefore, the goal was to identify and explain the reaction of the domestic economy to domestic and euro area shocks. For the purpose of this research, a five-variable structural vector autoregressive (SVAR) model comprising both domestic and foreign variables was used imposing block-exogeneity restrictions and assuming that domestic shocks have no significant impact on variables from the euro area. Variables were divided into two blocks, where the first block represented foreign economy and was comprised of real Gross Domestic Product (GDP) and harmonized consumer price index in the euro area, while the second block represented Croatian economy and consisted of real GDP, consumer price index and real exchange rate of the kuna against euro. Using innovation analysis, we examined the size and the persistence of both domestic and foreign shocks on the Croatian economy and studied the relative importance of each shock in explaining the fluctuations of domestic variables. The estimated impulse response functions and variance decomposition showed that foreign variables have a significant impact on domestic variables and are the main determinants of domestic inflation and economic activity in Croatia. The results can be useful to policy makers as they show that the volatility of foreign macroeconomic fundamentals should be taken into account for future studies of domestic economic developments.

Block-exogeneity restrictions; Croatia; Macroeconomic shocks; Small open economy (SOE); structural vector autoregressive (SVAR) model

Rad je u potpunosti podržan od Projekta HRZZ STRENGTHS ; 2014-2018, Projekt br. 9402. Acknowledgment: This work has been fully supported by Croatian Science Foundation under the project STRENGTHS (project no. 9402).