Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222063 
Year of Publication: 
2019
Series/Report no.: 
IEHAS Discussion Papers No. MT-DP - 2019/16
Publisher: 
Hungarian Academy of Sciences, Institute of Economics, Budapest
Abstract: 
We study the role of productivity convergence and financial conditions in the recent growth experience of Hungary. We build a stochastic, small-open economy growth model with productivity convergence, capital accumulation and external borrowing. Using empirically identified processes for productivity and the external interest premium, we simulate the effects of two unexpected, permanent changes on Hungarian growth. The first change is the sharp productivity slowdown starting in 2006, and the second is the tightening of external financial conditions starting in 2009. Simulating our model, we show that the empirically identified productivity and interest premium processes - along with the two unexpected permanent changes and regular i.i.d. productivity and interest premium innovations - capture the main medium-run dynamics of the Hungarian economy both before and after the global financial crisis. Running counterfactuals, we also find that the observed slowdown in GDP per capita growth was mostly driven by productivity, while the tightening of external financing conditions is important to understand investment behavior and the net foreign asset position.
Subjects: 
economic growth
convergence
productivity
interest premium
Hungary
JEL: 
E13
E22
F43
O47
Document Type: 
Working Paper

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