SLOVAK ECONOMY AND INTEREST RATES SHOCKS

Uribe and Schmitt-Grohe (2014) demonstrate that business cycles in emerging market economies are correlated with the interest rate that these countries face in international financial markets. This statement leads to question what fraction of business cycle fluctuations is due to movements in country interest rate. Uribe and Yue (2006) offer the specification of vector auto-regression model to quantify the macroeconomic effects of interest rate shocks. We use their specification to investigate the impact of world financial frictions on the Slovak economic activity in the period 2001 - 2011 and to confirm our assumption that overall economic activity had no impact on the financial world frictions for the economy as well. Furthermore, it appears the impact of production shocks on the economy.