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Measuring the correlation of shocks between the EU15 and the new member countries |
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| Authors: | Stephen G. Hall George Hondroyiannis |
| Affiliation: | 1. Department of Economics, Leicester University, University Rd, Leicester, LE1 7RH, UK 2. National Institute of Economic and Social Research (NIESR), 2 Dean Trench Street, Smith Square, London, SW1P 3HE, UK 3. Economic Research Department, Bank of Greece, Athens, Greece 4. Harokopio University, Athens, 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. |
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