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

  • Stephen G. Hall

    (Leicester University and NIESR)

  • George Hondroyiannis

    ()

    (Bank of Greece, Economic Research Department)

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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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
Contact details of provider: Web page: http://www.bankofgreece.gr

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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. Heather D Gibson & Euclid Tsakalotos, 2003. "Capital Flows and Speculative Attacks in Prospective EU Member States," Working Papers 06, Bank of Greece.
  3. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
  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 116-31, February.
  5. Bennett T. McCallum, 1999. "Theoretical Issues Pertaining to Monetary Unions," NBER Working Papers 7393, National Bureau of Economic Research, Inc.
  6. 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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