The Transmission of Business Cycles: Lessons From the 2004 Enlargement and the Euro Adoption

International audienceThis paper evaluates macroeconomic interdependencies of seven Central and Eastern European Countries (CEECs) with the Euro Area (EA) through trade relationship. We estimate a near-VAR model and we simulate responses of activity in those CEECs to output shocks for twelve former members of the EA before and after the 2004 enlargement of the European Union (EU). During both periods, empirical results show that spillover effects come through the main economies of the EA: Germany, France and Italy. Furthermore, CEECs are more responsive to output shocks in the EA after 2004 than before (3.3 times larger on average). Increases in spillover effects are larger for the three CEECs that adopted the Euro early (Slovenia, Slovakia, and Estonia) than the other CEECs (4.9 versus 2.1) but without higher trade intensity with the EA (1.07 versus 1.12). Our results show that trade effects are positive inside the same currency area but negative for the CEECs without the euro. JEL Classifications: F13, F15, F4