TRANSMISSION OF INFLATION AND ECONOMIC GROWTH IN THE EURO AREA IN THE RESPECT TO A SINGLE MONETARY RULE
TRANSMISSION OF INFLATION AND ECONOMIC GROWTH IN THE EURO AREA IN THE RESPECT TO A SINGLE MONETARY RULE

Summary/Abstract: The objective of the research is to investigate inflation and economic transmission among the Visegrad countries (Czech Republic, Hungary, Poland and Slovakia) and the euro area. Narrow external trade and integration relations suppose significant level of transmission within the observed countries. Level of (a) symmetry among inflation and economic growth shocks can be crucial for a single monetary rule application. Importance of this issue is not relevant only for Slovakia, the euro area member since 2009, but for the Czech Republic, Hungary and Poland, too, as the future euro area member. Estimation of inflation and economic growth transmission is based on the vector error correction model. Variance decomposition enables us to observe these interdependences among particular countries throughout several horizons. Dominance of the euro area is more obvious in the case of economic growth. Therefore, from the perspective of the Visegrad countries, a potential single monetary rule should put more weight on economic growth than inflation. However, due to an endogenous argument, level of these interdependences should increase gradually in time. The paper was elaborated within the project VEGA 1/0973/11.

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