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

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.