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

Author

Listed:
  • 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.

Suggested Citation

  • Stephen G. Hall & George Hondroyiannis, 2006. "Measuring the Correlation of Shocks betweem the EU15 and the New Member Countries," Working Papers 31, Bank of Greece.
  • Handle: RePEc:bog:wpaper:31
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    References listed on IDEAS

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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. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    3. Bennett T. McCallum, 1999. "Theoretical Issues Pertaining to Monetary Unions," NBER Working Papers 7393, National Bureau of Economic Research, Inc.
    4. 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 116-131, February.
    5. Roy van der Weide, 2002. "GO-GARCH: a multivariate generalized orthogonal GARCH model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(5), pages 549-564.
    6. 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, September.
    7. 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.
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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. Otmar Issing, 2006. "Europe's Hard Fix: The Euro Area," Working Papers 39, Bank of Greece.
    3. 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.
    4. Alexandros E. Milionis, 2006. "An Alternative Definition of Market Efficiency and some Comments on its Empirical Testing," Working Papers 50, Bank of Greece.
    5. 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.
    6. George A. Christodoulakis & Stephen E Satchell, 2006. "Exact Elliptical Distributions for Models of Conditionally Random Financial Volatility," Working Papers 32, Bank of Greece.

    More about this item

    Keywords

    Business cycle; GARCH;

    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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