IDEAS home Printed from https://ideas.repec.org/p/bog/wpaper/31.html

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
    as

    Download full text from publisher

    File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper200631.pdf
    File Function: Full Text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Kenneth Rogoff, 2001. "Why Not a Global Currency?," American Economic Review, American Economic Association, vol. 91(2), pages 243-247, May.
    3. 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.
    4. Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356, National Bureau of Economic Research, Inc.
    5. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(1), pages 122-150, February.
    6. Weide, R. van der, 2002. "Generalized Orthogonal GARCH. A Multivariate GARCH model," CeNDEF Working Papers 02-02, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
    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.
    8. McKinnon, Ronald I, 1994. "A Common Monetary Standard or a Common Currency for Europe? Fiscal Lessons from the United States," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(4), pages 337-357, November.
    9. repec:onb:oenbwp:y::i:69:b:1 is not listed on IDEAS
    10. 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.
    11. M.J. Artis, 2003. "Reflections on the optimal currency area (OCA) criteria in the light of EMU," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 297-307.
    12. Bennett T. McCallum, 1999. "Theoretical Issues Pertaining to Monetary Unions," NBER Working Papers 7393, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. 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.
    3. George A. Christodoulakis & Stephen E Satchell, 2006. "Exact Elliptical Distributions for Models of Conditionally Random Financial Volatility," Working Papers 32, Bank of Greece.
    4. John Williamson, 2006. "A worldwide system of reference rates," International Economics and Economic Policy, Springer, vol. 3(3), pages 341-352, December.
    5. Otmar Issing, 2006. "Europe's Hard Fix: The Euro Area," Working Papers 39, Bank of Greece.
    6. 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.
    7. Alexandros E. Milionis, 2006. "An Alternative Definition of Market Efficiency and some Comments on its Empirical Testing," Working Papers 50, Bank of Greece.
    8. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hall, S.G. & Yhap, B., 2008. "Measuring the Correlation of Shocks Between the UK and the Core of Europe," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 5(1), pages 17-26, March.
    2. Han, Chulwoo & Park, Frank C., 2022. "A geometric framework for covariance dynamics," Journal of Banking & Finance, Elsevier, vol. 134(C).
    3. João Caldeira & Guilherme Moura & André A.P. Santos, 2012. "Portfolio optimization using a parsimonious multivariate GARCH model: application to the Brazilian stock market," Economics Bulletin, AccessEcon, vol. 32(3), pages 1848-1857.
    4. Lucchetti, Riccardo & Palomba, Giulio, 2009. "Nonlinear adjustment in US bond yields: An empirical model with conditional heteroskedasticity," Economic Modelling, Elsevier, vol. 26(3), pages 659-667, May.
    5. Sharma, Udayan & Karmakar, Madhusudan, 2023. "Measuring minimum variance hedging effectiveness: Traditional vs. sophisticated models," International Review of Financial Analysis, Elsevier, vol. 87(C).
    6. Zolotko, Mikhail & Okhrin, Ostap, 2014. "Modelling the general dependence between commodity forward curves," Energy Economics, Elsevier, vol. 43(C), pages 284-296.
    7. repec:bgu:wpaper:0608 is not listed on IDEAS
    8. Riccardo LUCCHETTI & Giulio PALOMBA, 2006. "Forecasting US bond yields at weekly frequency," Working Papers 261, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    9. de Almeida, Daniel & Hotta, Luiz K. & Ruiz, Esther, 2018. "MGARCH models: Trade-off between feasibility and flexibility," International Journal of Forecasting, Elsevier, vol. 34(1), pages 45-63.
    10. Kim, Donggyu & Fan, Jianqing, 2019. "Factor GARCH-Itô models for high-frequency data with application to large volatility matrix prediction," Journal of Econometrics, Elsevier, vol. 208(2), pages 395-417.
    11. Carlos Trucíos & João H. G. Mazzeu & Marc Hallin & Luiz K. Hotta & Pedro L. Valls Pereira & Mauricio Zevallos, 2022. "Forecasting Conditional Covariance Matrices in High-Dimensional Time Series: A General Dynamic Factor Approach," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 41(1), pages 40-52, December.
    12. Paolella, Marc S. & Polak, Paweł & Walker, Patrick S., 2021. "A non-elliptical orthogonal GARCH model for portfolio selection under transaction costs," Journal of Banking & Finance, Elsevier, vol. 125(C).
    13. Lucchetti, Riccardo & Palomba, Giulio, 2008. "Nonlinear Adjustment in US Bond Yields: an Empirical Analysis with Conditional Heteroskedasticity," MPRA Paper 11571, University Library of Munich, Germany.
    14. Andrea BUCCI, 2017. "Forecasting Realized Volatility A Review," Journal of Advanced Studies in Finance, ASERS Publishing, vol. 8(2), pages 94-138.
    15. Tim Bollerslev, 2008. "Glossary to ARCH (GARCH)," CREATES Research Papers 2008-49, Department of Economics and Business Economics, Aarhus University.
    16. Hafner, Christian M. & Preminger, Arie, 2009. "Asymptotic Theory For A Factor Garch Model," Econometric Theory, Cambridge University Press, vol. 25(2), pages 336-363, April.
    17. Duchesne, Pierre, 2006. "Testing for multivariate autoregressive conditional heteroskedasticity using wavelets," Computational Statistics & Data Analysis, Elsevier, vol. 51(4), pages 2142-2163, December.
    18. Andrea Silvestrini & David Veredas, 2008. "Temporal Aggregation Of Univariate And Multivariate Time Series Models: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 458-497, July.
    19. Takashi Isogai, 2015. "An Empirical Study of the Dynamic Correlation of Japanese Stock Returns," Bank of Japan Working Paper Series 15-E-7, Bank of Japan.
    20. M. Raddant & T. Di Matteo, 2023. "A look at financial dependencies by means of econophysics and financial economics," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(4), pages 701-734, October.
    21. Annastiina Silvennoinen & Timo Teräsvirta, 2009. "Multivariate GARCH Models," Springer Books, in: Thomas Mikosch & Jens-Peter Kreiß & Richard A. Davis & Torben Gustav Andersen (ed.), Handbook of Financial Time Series, chapter 9, pages 201-229, Springer.

    More about this item

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bog:wpaper:31. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anastasios Rizos (email available below). General contact details of provider: https://edirc.repec.org/data/boggvgr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.