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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.
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Suggested Citation

  • Stephen Hall & George Hondroyiannis, 2006. "Measuring the correlation of shocks between the EU15 and the new member countries," Economic Change and Restructuring, Springer, vol. 39(1), pages 19-34, June.
    • Handle: RePEc:kap:ecopln:v:39:y:2006:i:1:p:19-34
    DOI: 10.1007/s10644-007-9018-0
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    Cited by:

    1. Stefaan Ide & Philippe Moës, 2004. "Asymetric growth and inflation developments in the acceding countries: a new assessment," Working Paper Research 63, National Bank of Belgium.
    2. John Williamson, 2006. "A worldwide system of reference rates," International Economics and Economic Policy, Springer, vol. 3(3), pages 341-352, December.
    3. Otmar Issing, 2006. "Europe's Hard Fix: The Euro Area," Working Papers 39, Bank of Greece.
    4. P. Swamy & George Tavlas, 2007. "The New Keynesian Phillips Curve and Inflation Expectations: Re-Specification and Interpretation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), 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.
    6. Eickmeier, Sandra & Breitung, Jörg, 2005. "How synchronized are central and east European economies with the euro area? Evidence from a structural factor model," Discussion Paper Series 1: Economic Studies 2005,20, Deutsche Bundesbank.
    7. George A. Christodoulakis & Stephen E Satchell, 2006. "Exact Elliptical Distributions for Models of Conditionally Random Financial Volatility," Working Papers 32, Bank of Greece.

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    More about this item

    Keywords

    Business cycle; GARCH; E32; C22;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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