Fear of a two-speed monetary union: what does a basic correlation scatter plot tell us?

Jean-Sébastien Pentecôte (1)

1 CREM - Centre de recherche en économie et management

I extend the Bayoumi-Eichengreen (1993) approach by extracting new information from a scatter plot of correlation coefficients between shocks in order to better visualize how far a given country is from a monetary union. Indexes of distance and relative strength can be derived from either a nonlinear or a linear combination of correlations in connexion with distinct welfare loss functions. Using quarterly data on ten countries over 1979:I-2011:IV, shocks have become more symmetric within, but also outside, the euro area. Despite less asymmetry in shock asymmetry since 1999, new statistical tests support the idea of a two-speed EMU.

Mots clés: monetary union; euro; shock asymmetry; distance; VAR identification

Domaines: Economies et finances

Jean-Sébastien Pentecôte. Fear of a two-speed monetary union: what does a basic correlation scatter plot tell us?. 2013. ⟨halshs-00916947⟩