Do German Industrial Confidence Shocks Matter for Central and Eastern Europe?
Do German Industrial Confidence Shocks Matter for Central and Eastern Europe?

Summary/Abstract: This paper studies the transmission of German industrial confidence shocks to industrial confidence, industrial production, and price and interest rate level in nine Central and Eastern European (CEE) countries (Czech Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia). The main questions the paper aims to answer are: (i) Do shocks in German industrial confidence affect economies in CEE? (ii) Which CEE economies are more susceptible to these shocks? (iii) Separating different groups of industrial production goods (capital goods, intermediate goods, and durable consumption goods), which production group is more sensitive to the shocks? We apply impulse response and forecast error variance decomposition analysis and find a heterogeneous response across CEE. The results imply confidence transmission running from Germany to several CEE countries, most notably Slovenia, Slovakia, and the Czech Republic.

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