Economic Change and Restructuring

, Volume 39, Issue 1–2, pp 19–34 | Cite as

Measuring the correlation of shocks between the EU15 and the new member countries

  • Stephen G. Hall
  • George Hondroyiannis


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.


Business cycle GARCH 

JEL Classifications

E32 C22 



The authors wish to thank Heather Gibson and the participants at the Euro Area Business Cycle Network (EABCN) Workshop on Business Cycle and Acceding Countries, Vienna 23/24 April 2004, for discussions and helpful comments on a previous version of this paper. Financial Support from ESRC grant No L138250122 is gratefully acknowledged from the first author. The views expressed in this paper are those of the authors and not those of the Bank of Greece.


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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Department of EconomicsLeicester University LeicesterUK
  2. 2.National Institute of Economic and Social Research (NIESR)LondonUK
  3. 3.Economic Research DepartmentBank of GreeceAthensGreece
  4. 4.Harokopio UniversityAthensGreece

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