Keywords: output sustainability, exogenous shock, endogenous shock, United States, USA, corporate bonds, bond spread, infinite vector autoregression, emerging economies, global crises, financial crises, external shock, domestic shock, output fluctuations, post-communist countries, Hashem Pesaran, Ronald Smith, banks, banking, real lending, cyclical components, cross-sectional dependence, impulse response functions, positive shock, Eastern Europe, Russia, Russian Federation, mild shock, ambiguous shock, variance decompositions, economic activity, Poland, Czech Republic, Slovakia, Hungary, Lithuania, Latvia, Estonia, Slovenia, Romania, Bulgaria, Ukraine, sustainable development, sustainable economy
Output sustainability to exogenous and endogenous shocks: evidence from emerging economies
This paper studies the impact of exogenous and endogenous shocks (exogenous shock is used interchangeably with external shock; endogenous shock is used interchangeably with domestic shock) on output fluctuations in post-communist countries during the 2000s. The first part presents the analytical framework and formulates a research hypothesis. The second part presents vector autoregressive estimation and analysis model proposed by Pesaran (2004) and Pesaran and Smith (2006) that relates bank real lending, the cyclical component of output and spreads and accounts for cross-sectional dependence (CD) across the countries. Impulse response functions show that exogenous positive shock lead to a drop in output sustainability for 9 over 12 Central Eastern European countries and Russia, when the endogenous shock is mild and ambiguous. Moreover, the effect of exogenous shock is more significant during the crises. Variance decompositions show that exogenous shock in the aftermath of crisis had a substantial impact on economic activity of emerging economies.