Measuring the Correlation of Shocks between the UK and the Core of Europe

A key issue arising in the debate over whether the United Kingdom should join the Euro concerns the nature of the shocks which affect the United Kingdom and the Euro Area economies. Where these are closely related, then few problems should be expected from UK membership of the Euro Area. This study by Stephen Hall of the National Institute of Economic and Social Research and Imperial College, and B. Yhap of Imperial College, develops and applies a new method of assessing how closely the disturbances affecting inflation in the UK are correlated with those in France, Germany and Italy. The method ensures that an up-to-date picture is provided while earlier work has relied on correlations calculated over long periods; these inevitably give an outdated view.

• Primary Source

http://www.niesr.ac.uk/pubs/dps/dp213.pdf http://www.niesr.ac.uk/pubs/dps/dp213.pdf

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