Impact of Macroeconomic Shocks on Real Output Fluctuations in Croatia

The paper investigates the sources of real output variability in Croatia by assessing the impact of macroeconomic structural shocks on fl uctuations in real output. The analysis is based on a structural vector autoregressive model (SVAR) where structural shocks (demand, supply and nominal) are identifi ed using Blanchard-Quah long run restriction technique. The fi ndings of the empirical analysis point out the dominant role of supply shocks in explaining real output fl uctuations. In the same time the results reveal negligible effects of nominal and demand shocks on the variability of real output. To get a better insight in the dynamics of real output in the aftermath of the structural shocks we also analyse the impulse response functions. The results show that a positive supply shock leads to a permanent increase in real output. A nominal shock decreases the real output marginally although the effect is only temporary and fades out quickly. Surprisingly, the effect of a demand shock is insignifi cant both in the short run and in the long run