| The Keynesian, Intertemporal, and Real Business Cycle theories of open economies are used to evaluate dynamic responses to shocks in the case of the Central European transition economy Hungary.;Four models investigate the interrelation of income, exports, imports, and the Balance of Trade for the period of Jan-91 to Mar-97. First-order Autoregressive (AR), Autoregressive Moving Average (ARMA), Instrumental Variable (IV), Output - Error (OE), and Box-Jenkins (BJ) methods of estimation simulate the response to transient and permanent shocks. The nature of these responses reveals important evidence concerning the state of the Hungarian economy and the progress of its restructuring and integration into the global economy.;All four models evaluated indicate that Hungary significantly benefits from trade. Even where a increases in income are spent on imports, significant portions of the income remain in the domestic economy. Particularly for transient income shocks, where 97% remains in the domestic economy. Imports and Export alike transmit through to income in the long-term at a significant high level as well. In the short-term Hungary is found to behave as predicted by the Keynesian demand-shock theory and in the long-term as expected by the Real Business Cycle productivity-technology shock model. These signs of the benefits of an open economy are encouraging for Hungary and other Central European countries. |
