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Measuring the correlation of shocks between the EU15 and the new member countries

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  • Stephen Hall

    ()

  • George Hondroyiannis

Abstract

This paper considers the question of the symmetry of inflation, exchange rate changes and GDP shocks between the EU15 and the new member countries. It applies a relatively new technique, the orthogonal GARCH model, which allows us to calculate a complete time varying correlation matrix for these countries. We can then examine the way the conditional correlation of shocks between the EU15 and the new member countries has been evolving over time. Our results suggest that the shocks which hit the EU are not symmetrical with those affecting the majority of new member countries. In addition, most of the new member countries seem to exhibit relatively low correlation with EU15.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s10644-007-9018-0
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Bibliographic Info

Article provided by Springer in its journal Economic Change and Restructuring.

Volume (Year): 39 (2006)
Issue (Month): 1 (June)
Pages: 19-34

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Handle: RePEc:kap:ecopln:v:39:y:2006:i:1:p:19-34

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Web page: http://www.springerlink.com/link.asp?id=113294

Related research

Keywords: Business cycle; GARCH; E32; C22;

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  1. Heather D. Gibson & Euclid Tsakalotos, 2004. "Capital flows and speculative attacks in prospective EU member states," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(3), pages 559-586, 09.
  2. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February.
  3. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, vol. 41(3-5), pages 753-760, April.
  4. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  5. Bennett T. McCallum, 1999. "Theoretical Issues Pertaining to Monetary Unions," NBER Working Papers 7393, National Bureau of Economic Research, Inc.
  6. Kenneth Rogoff, 2001. "Why Not a Global Currency?," American Economic Review, American Economic Association, vol. 91(2), pages 243-247, May.
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Cited by:
  1. George A. Christodoulakis & Stephen E Satchell, 2006. "Exact Elliptical Distributions for Models of Conditionally Random Financial Volatility," Working Papers 32, Bank of Greece.
  2. Otmar Issing, 2006. "Europe's Hard Fix: The Euro Area," Working Papers 39, Bank of Greece.
  3. John Williamson, 2006. "A Worldwide System of Reference Rates," Working Papers 130, Oesterreichische Nationalbank (Austrian Central Bank).
  4. P. Swamy & George Tavlas, 2007. "The New Keynesian Phillips Curve and Inflation Expectations: Re-Specification and Interpretation," Economic Theory, Springer, vol. 31(2), pages 293-306, May.
  5. Alexandros E. Milionis, 2006. "An Alternative Definition of Market Efficiency and some Comments on its Empirical Testing," Working Papers 50, Bank of Greece.

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