The Impacts of the Czech Economy on the Slovak Economy – Evidence from the VAR model

Abstract: This paper studies the effect of the Czech economy on the Slovak Republic. Specifically, we analyze the general economic relationship as well as responses of macroeconomic variables of Slovakia to shocks in the Czech Republic. Firstly, we present the theoretical background of their relationship on top of which we build a regression analysis. Secondly, for the regression analysis, we used quarterly data for the years 1994-2021. On cleared and transformed data we evaluated our estimates using the standard form vector autoregression model. The paper analyzes two models based on the intention to analyze a comprehensive view. The first model estimates the relationship based on the living situation perspective. The second model aims for the international trade point of view. The results concluded from studying the impulse response function and the Granger causality suggest the presence of a significant relationship between these two countries. However, as we cannot reject the null hypothesis about the Granger non-causality, we suggest that the presence of the relationship may be caused by a similar reaction to global events together with a potential synchronization of economic cycles.