DP1689 On Identifying the Core of EMU: An Exploration of Some Empirical Criteria

Author(s): Michael J Artis, Wenda Zhang
Publication Date: August 1997
Keyword(s): Business Cycles, Cluster Analysis, ERM, Real Exchange Rates
JEL(s): C14, E32, F15, F31
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1689

The paper reports strikingly high correlations of the cyclical components of industrial production between the participant countries in the ERM. Supplementing these correlations with criteria based on real exchange rate volatility, trade and monetary policy conformity, cluster analysis is used to identify a core group of countries for which monetary union with Germany seems less controversial and to define other groups for which monetary union might be less advisable.