Structural changes in Central and Eastern European economies: breaking news or breaking the ice?
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This paper extends the sparse existing literature on structural breaks in emerging markets in Central and Eastern Europe by analyzing structural breaks in the intercept, trend and variance of monthly key macroeconomic variables, such as industrial production, inflation, monetary aggregates, nominal exchange rates and series related to the labor market. Using the Bayesian procedure developed by Wang and Zivot (2000, A Bayesian time series model of multiple structural changes in level, trend and variance. J Busi Econom 18:374–386), we provide strong evidence in favor of multiple structural breaks in the series under study. As most of the existing empirical literature on European emerging markets does not sufficiently deal with structural breaks, the instability found in this paper has important implications for macro-econometric modeling as well as the ensuing recommendations for economic policy.