Exploring the dynamic partial influence of global risks on the nexus amid inflation and economic growth of emerging European countries

Emerging nations have faced significant external shocks in recent years, resulting in increased economic policy uncertainty and geopolitical risk to their growth trajectories. Similarly, emerging economies in Europe are susceptible to global shocks; however, these shocks tend to have a more pronounced impact on prices and output which may vary across time and frequency. This underscores the need for a deeper analysis through time and frequency of the growth-inflation nexus in response to global shocks highlighting the study’s unique contribution. Hence, we examined the dynamic conditional impact of two global risk factors as uncertainty indices amid inflation (CPI) and economic growth (GDP) in the context of four selected emerging European nations. These countries included Czech Republic, Greece, Hungary, and Russia. Two uncertainty indicators − Global Economic Policy Uncertainty (GEPU) and Geopolitical Risk (GPR) were utilized. The bi-wavelet approach was employed to examine the nexus between CPI and GDP, whereas the partial wavelet technique was used to decipher the co-movement between CPI and GDP relative to the global risk factors. We found low positive co-movements between inflation and economic growth in the short-term. Conversely, we observed no lead-lag nexus in the long-term confirming the natural rate hypothesis. The results of the partial wavelet divulged the protracted and substantial influence of GEPU on the co-movements between GDP and CPI except for Russia. The time-varying perspective was confirmed by the DCC-GARCH time-varying connectedness approach as robustness. The country-specific variables as well as the global risk factors are highly connected in crisis episodes implying contagion effects. The economic growth indicator revealed a consistent net receiving role whereas GEPU and GPR were significant net transmitters. This explicates that the economic growth of these emerging economies is responsive to GEPU and GPR shocks.