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

Stephen Hall and George Hondroyiannis

No 31, Working Papers from Bank of Greece

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.

Keywords: Business cycle; GARCH (search for similar items in EconPapers)
JEL-codes: C22 E32 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2006-01
New Economics Papers: this item is included in nep-eec and nep-mac
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Journal Article: Measuring the correlation of shocks between the EU15 and the new member countries (2006)
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