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

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Listed:
  • Jean-Sébastien Pentecôte

    () (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper extends Bayoumi and Eichengreen's (1993) approach to better visualize how far a given country is from a monetary union. Useful information is extracted from the scatter plot of correlation coefficients between supply and demand shocks. Indexes of distance and relative strength of asymmetry are derived from two, linear and nonlinear, combinations of correlations. Using quarterly data on ten countries over 1979-2011, the newly proposed statistical tests are supportive of a two-speed European Monetary Union, despite less asymmetric supply and demand shocks since 1999.

Suggested Citation

  • Jean-Sébastien Pentecôte, 2013. "Fear of a two-speed monetary union: what does a basic correlation scatter plot tell us?," Post-Print halshs-00801266, HAL.
  • Handle: RePEc:hal:journl:halshs-00801266
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00801266
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    References listed on IDEAS

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    1. Dellas, Harris & Tavlas, George S., 2009. "An optimum-currency-area odyssey," Journal of International Money and Finance, Elsevier, vol. 28(7), pages 1117-1137, November.
    2. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    3. Philip R. Lane, 2000. "Asymmetric Shocks and Monetary Policy in a Currency Union," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 585-604, December.
    4. Nolan, Charles, 2002. "Monetary Stabilisation Policy in a Monetary Union: Some Simple Analytics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(2), pages 196-215, May.
    5. Jakob de Haan & Robert Inklaar & Richard Jong-A-Pin, 2008. "Will Business Cycles In The Euro Area Converge? A Critical Survey Of Empirical Research," Journal of Economic Surveys, Wiley Blackwell, vol. 22(2), pages 234-273, April.
    6. Øistein RØisland & Ragnar Torvik, 2003. "Optimum Currency Areas Under Inflation Targeting," Open Economies Review, Springer, vol. 14(2), pages 99-118, April.
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    More about this item

    Keywords

    distance; correlation box; shock asymmetry; euro; monetary union;

    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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