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Global Bond Portfolios and EMU

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  • Philip R. Lane

    (IIIS and Economics Department, Trinity College Dublin and CEPR)

Abstract

This paper examines the bilateral composition of international bond portfolios for the euro area and the individual EMU member countries. I find considerable support for euroarea bias: EMU member countries disproportionately invest in one another relative to other country pairs. Another striking pattern is the positive connection between trade linkages and financial linkages in explaining asymmetries across EMU member countries in terms of their outward bond investments vis-à-vis external counterparties. My empirical results underline the impact of currency union on financial integration and support the notion that financial regionalization is the leading force underlying financial globalization.

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Bibliographic Info

Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 2 (2006)
Issue (Month): 2 (May)
Pages:

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Handle: RePEc:ijc:ijcjou:y:2006:q:2:a:1

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  1. Michael B. Devereux & Philip R. Lane, 2002. "Understanding Bilateral Exchange Rate Volatility," Trinity Economics Papers 200211, Trinity College Dublin, Department of Economics.
  2. John D. Burger & Francis E. Warnock, 2004. "Foreign participation in local-currency bond markets," International Finance Discussion Papers 794, Board of Governors of the Federal Reserve System (U.S.).
  3. Martin, Philippe & Rey, Hélène, 1999. "Financial Integration and Asset Returns," CEPR Discussion Papers 2282, C.E.P.R. Discussion Papers.
  4. Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, vol. 45(4-6), pages 783-796, May.
  5. Marco Pagano, 2004. "The European Bond Markets under EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 531-554, Winter.
  6. Maurice Obstfeld, 2004. "External Adjustment," NBER Working Papers 10843, National Bureau of Economic Research, Inc.
  7. André Geis & Arnaud Mehl & Stefan Wredenborg, 2004. "The international role of the euro - evidence from bonds issued by non-euro area residents," Occasional Paper Series 18, European Central Bank.
  8. Martin, Philippe & Rey, Hélène, 1999. "Financial Super-Markets: Size Matters for Asset Trade," CEPR Discussion Papers 2232, C.E.P.R. Discussion Papers.
  9. Philip R. Lane, 2006. "Global Bond Portfolios and EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp168, IIIS.
  10. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "International Investment Patterns," CEPR Discussion Papers 4499, C.E.P.R. Discussion Papers.
  11. John Y. Campbell & Luis M. Viceira & Joshua S. White, 2002. "Foreign Currency for Long-Term Investors," NBER Working Papers 9075, National Bureau of Economic Research, Inc.
  12. Steven J. Davis & Jeremy Nalewaik & Paul Willen, 2000. "On the Gains to International Trade in Risky Financial Assets," NBER Working Papers 7796, National Bureau of Economic Research, Inc.
  13. Philip R. Lane, 2006. "The Real Effects of EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp115, IIIS.
  14. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  15. Andrew K. Rose & Mark M. Spiegel, 2004. "A Gravity Model of Sovereign Lending: Trade, Default, and Credit," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 50-63, June.
  16. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "The International Equity Holdings of Euro Area Investors," The Institute for International Integration Studies Discussion Paper Series iiisdp104, IIIS.
  17. Honohan, Patrick & Lane, Philip R, 1999. "Pegging to the Dollar and the Euro," International Finance, Wiley Blackwell, vol. 2(3), pages 379-410, November.
  18. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2003. "International Financial Integration," CEPR Discussion Papers 3769, C.E.P.R. Discussion Papers.
  19. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
  20. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  21. Chen, Nai-Fu, 1991. " Financial Investment Opportunities and the Macroeconomy," Journal of Finance, American Finance Association, vol. 46(2), pages 529-54, June.
  22. Nicolas Coeurdacier & Stéphane Guibaud, 2005. "International equity holdings and stock returns correlations: Does diversification matter at all for portfolio choice?," Working Papers halshs-00590777, HAL.
  23. Ilmanen, Antti, 1995. " Time-Varying Expected Returns in International Bond Markets," Journal of Finance, American Finance Association, vol. 50(2), pages 481-506, June.
  24. Christian Broda & John Romalis, 2011. "Identifying the Relationship Between Trade and Exchange Rate Volatility," NBER Chapters, in: Commodity Prices and Markets, East Asia Seminar on Economics, Volume 20, pages 79-110 National Bureau of Economic Research, Inc.
  25. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
  26. Nicolas Coeurdacier & Stéphane Guibaud, 2005. "International equity holdings and stock returns correlations: Does diversification matter at all for portfolio choice?," PSE Working Papers halshs-00590777, HAL.
  27. Robert Anderton & Filippo di Mauro & Fabio Moneta, 2004. "Understanding the impact of the external dimension on the euro area - trade, capital flows and other international macroeconomic linkages," Occasional Paper Series 12, European Central Bank.
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