Why does the Euro fail? The DCCA approach

Paulo Ferreira, Andreia Dionisio and G.F. Zebende

Physica A: Statistical Mechanics and its Applications, 2016, vol. 443, issue C, 543-554

Abstract: The present crisis in the Euro is one of the most serious crises reported in history. The fact that different countries that adopted the Euro have different conditions to support asymmetric shocks in their economies could explain some of the consequences currently affecting the Eurozone. In this paper we apply detrended cross-correlation analysis and its cross correlation coefficient to evaluate the degree of financial integration of the first set of countries to adopt the common currency. Since time series used in these studies are known to be non-stationary, DCCA is suited to study it. It is the first time this methodology has been applied to study financial integration. We conclude that the degree of financial integration is unequal in several countries using the common currency. The fact that countries like Greece, Ireland or Portugal are the ones facing most problems in verification of the parity used in this paper could help to explain the present instability in the Eurozone.

Keywords: Financial integration; Long-range correlation; Detrended cross-correlation analysis; Correlation coefficient (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (17)

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Working Paper: Why does the Euro fail? The DCCA approach (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:443:y:2016:i:c:p:543-554

DOI: 10.1016/j.physa.2015.10.013

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