Weathering Global Shocks and Macrofinancial Vulnerabilities in Emerging Europe : Comparing Turkey and Poland

While both Turkey and Poland weathered the 2008/2009 crisis relatively well compared to other countries in Central, Eastern and Southeastern Europe (CESEE), their macrofinancial indicators responded fairly strongly to the Federal Reserve System's tapering announcement in May 2013. Among other things, marked currency depreciation and reversals in capital flows challenged policymakers in the region. To get a deeper understanding of the transmission of global shocks to macrofinancial variables in CESEE, we use a Bayesian global vector autoregressive model to investigate the effects of a U.S.-based monetary policy shock. Our Simulation results suggest that both Turkey and Poland exhibit pronounced short- to medium-run macroeconomic responses to U.S. monetary policy shocks. The responses of Turkey tend to be somewhat stronger than those of Poland and the CESEE average, signaling the structurally different nature of the Turkish economy. Overall, the identified impulse responses largely resemble the actual post-tapering announcement developments