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Currency composition of international bonds: The EMU effect

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  • Hale, Galina B.
  • Spiegel, Mark M.

Abstract

We analyze the impact that the launch of the EMU had on the currency denomination of private international bond issues in 1990–2006 using micro-level data. Our stylized model predicts that the introduction of the euro would lead to an increase in the share of euro-denominated debt and a decline in the share of dollar-denominated debt issued by firms located in countries outside both the United States and the euro area. Moreover, our model predicts that the euro effect would be particularly pronounced for nonfinancial firms. Our empirical results are consistent with these predictions. In addition, we find that among nonfinancial firms, the impact on new issuers is larger than on seasoned issuers. Extending the model to allow for differences in issuance volumes across future monetary union countries prior to integration, we also predict larger increases in euro-denominated issuance among firms from smaller monetary union countries. We confirm this prediction for international bond issues by euro-area firms.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 88 (2012)
Issue (Month): 1 ()
Pages: 134-149

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Handle: RePEc:eee:inecon:v:88:y:2012:i:1:p:134-149

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Bond markets; Monetary union; Currency risk; Original sin; Liquidity;

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References

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  1. Lane, Philip R., 2005. "Global bond portfolios and EMU," Working Paper Series 0553, European Central Bank.
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Citations

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Cited by:
  1. Hornuf, Lars & Engert, Andreas, 2013. "Can Network Effects Impede Optimal Contracting in Debt Securities?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79867, Verein für Socialpolitik / German Economic Association.
  2. Paul Mizen & Frank Packer & Eli M Remolona & Serafeim Tsoukas, 2012. "Why do firms issue abroad? Lessons from onshore and offshore corporate bond finance in Asian emerging markets," BIS Working Papers 401, Bank for International Settlements.
  3. Böninghausen, Benjamin & Zabel, Michael, 2013. "Credit Ratings and Cross-Border Bond Market Spillovers," Discussion Papers in Economics 21075, University of Munich, Department of Economics.

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