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Jean-Sébastien Pentecôte
''Fear of a two-speed monetary union: what does a basic correlation scatter plot tell us?''
( 2013, Vol. 33 No.1 )
This paper extends Bayoumi and Eichengreen's (1993) approach to better visualize how far a given country is from a monetary union. Useful information is extracted from the scatter plot of correlation coefficients between supply and demand shocks. Indexes of distance and relative strength of asymmetry are derived from two, linear and nonlinear, combinations of correlations. Using quarterly data on ten countries over 1979-2011, the newly proposed statistical tests are supportive of a two-speed European Monetary Union, despite less asymmetric supply and demand shocks since 1999.
Keywords: monetary union, euro, shock asymmetry, correlation box, distance
JEL: F4 - Macroeconomic Aspects of International Trade and Finance: General
Manuscript Received : Jun 06 2012 Manuscript Accepted : Feb 01 2013

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