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Measuring the Correlation of Shocks betweem the EU15 and the New Member Countries

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Author Info

  • Stephen G. Hall

    (Leicester University and NIESR)

  • George Hondroyiannis

    ()
    (Bank of Greece, Economic Research Department)

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.

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File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper200631.pdf
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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 31.

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Length: 27 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:bog:wpaper:31

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Web page: http://www.bankofgreece.gr
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Related research

Keywords: Business cycle; GARCH;

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  1. Kenneth Rogoff, 2001. "Why Not a Global Currency?," American Economic Review, American Economic Association, vol. 91(2), pages 243-247, May.
  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. Heather D Gibson & Euclid Tsakalotos, 2003. "Capital Flows and Speculative Attacks in Prospective EU Member States," Working Papers 06, Bank of Greece.
  5. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
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Cited by:
  1. John Williamson, 2006. "A worldwide system of reference rates," International Economics and Economic Policy, Springer, vol. 3(3), pages 341-352, December.
  2. 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.
  3. Otmar Issing, 2006. "Europe's Hard Fix: The Euro Area," Working Papers 39, Bank of Greece.
  4. George A. Christodoulakis & Stephen E Satchell, 2006. "Exact Elliptical Distributions for Models of Conditionally Random Financial Volatility," Working Papers 32, Bank of Greece.
  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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