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Journal of Economic Integration 2012 December;27(4) :520-536.
DOI: https://doi.org/10.11130/jei.2012.27.4.520
Output Volatility and Its Transmission in Transition Economies: Implications for European Integration
Scott W. Hegerty 
Northeastern Illinois University
Corresponding Author: Scott W. Hegerty ,Tel: 001-773-442-5695, Fax: 001-773-442-5650, Email: S-Hegerty@neiu.edu
Copyright ©2012 Journal of Economic Integration
ABSTRACT
Following the 2008 financial crisis, the world’s attention was drawn to the periphery of the European Union, where economic openness and pegs to the Euro combined to destabilize the region. This study measures the output volatility of a set of Central and Eastern European countries from the early 1990s to 2011 using Generalized Autoregressive Conditional Heteroskedasticity (GARCH) and GARCH-in-Mean models. Volatility “spillovers” are then tested with Vector Autoregressive and Multivariate GARCH techniques. Overall, six countries can be modeled as a GARCH process, and for three of these, volatility significantly reduces output growth. Volatility comovements are particularly strong among the Visegrad countries, while Romania seems fairly insulated from external shocks. This asymmetry of responses to other CEE countries and to foreign shocks suggests that expanding the Eurozone may lead to adjustment problems.

JEL Classification
F41: Open Economy Macroeconomics
Keywords: Volatility | Output | Transition Economies | Vector Autoregression | GARCH
 
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