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Fear of a two-speed monetary union: what does a basic correlation scatter plot tell us?

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  • Jean-Sébastien Pentecôte

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

I extend the Bayoumi-Eichengreen (1993) approach by extracting new information from a scatter plot of correlation coefficients between shocks in order to better visualize how far a given country is from a monetary union. Indexes of distance and relative strength can be derived from either a nonlinear or a linear combination of correlations in connexion with distinct welfare loss functions. Using quarterly data on ten countries over 1979:I-2011:IV, shocks have become more symmetric within, but also outside, the euro area. Despite less asymmetry in shock asymmetry since 1999, new statistical tests support the idea of a two-speed EMU.

Suggested Citation

  • Jean-Sébastien Pentecôte, 2013. "Fear of a two-speed monetary union: what does a basic correlation scatter plot tell us?," Working Papers halshs-00916947, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00916947
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00916947
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    More about this item

    Keywords

    monetary union; euro; shock asymmetry; distance; VAR identification;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • D6 - Microeconomics - - Welfare Economics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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