FED vs ECB: Which matters most for Visegrad economies? Evidence from a Bayesian VAR model

We use a Bayesian VAR with economically interpretable structural restrictions and zero restrictions on lags, to analyse the transmission channels of external shocks to an extended set of Central European markets. In particular, we study to what extent monetary policy shocks originating from the US and from the EU can explain áuctuations on countries in the Visegrad Group. We Önd that the US monetary policy ináuences the Central European macroeconomic variables at least as much as its EU counterpart, often independently, without being mediated through Germany. Furthermore, the Öndings indicate that the income absorption e§ect dominates, leading to a contraction in output of small open economies.