Measuring the Correlation of Shocks Between
the UK and the Core of Europe
S.G. and Yhap, B.
Published in Romanian Journal of Economic Forecasting, 2008, volume
9 issue 1, 17-26
This paper considers the question of the symmetry of inflation and GDP shocks
between the UK and the three major European EMU countries. It applies a
relatively new technique, the orthogonal GARCH model, which allows us to
calculate a complete time varying correlation matrix for these four countries.
We can then examine the way the conditional correlation of shocks between the UK
and the other European countries ahs been evolving over time. Our overall
results Show that the shocks, which hit the UK, are now broadly symmetrical with
France and Italy but that Germany seems to exhibit very low correlation with any
of the other three countries.
Shocks, EMU, Europe, GARCH
C10, C12, C13, C15