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Monetary Integration and the Cost of Borrowing

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Author Info
Marta Gomez Puig (Universitat de Barcelona)

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Abstract

With the beginning of the European Monetary Union (EMU), euro-area sovereign securities adjusted spreads over Germany (corrected from the foreign exchange risk) experienced an increase that caused a lower than expected decline in borrowing costs. The objective of this paper is to study what explains that rising. In particular, if it took place a change in the price assigned by markets to domestic (credit risk and/or market liquidity) or to international risk factors. The empirical evidence supports the idea that a change in the market value of liquidity occurred with the EMU. International and default risk play a smaller role.

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Publisher Info
Paper provided by Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 134.

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Length: 47 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:bar:bedcje:2005134

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Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
Web page: http://www.ere.ub.es
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Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Kerstin Bernoth & Jürgen von Hagen & Ludger Schuknecht, 2004. "Sovereign risk premia in the European government bond market," Working Paper Series 369, European Central Bank. [Downloadable!]
  2. Favero, Carlo A & Giavazzi, Francesco & Spaventa, Luigi, 1997. "High Yields: The Spread on German Interest Rates," Economic Journal, Royal Economic Society, vol. 107(443), pages 956-85, July. [Downloadable!] (restricted)
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  3. Jun Liu & Francis A. Longstaff & Ravit E. Mandell, 2002. "The Market Price of Credit Risk: An Empirical Analysis of Interest Rate Swap Spreads," NBER Working Papers 8990, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August. [Downloadable!] (restricted)
  5. Hua He, 2000. "Modeling Term Structures of Swap Spreads," Yale School of Management Working Papers ysm150, Yale School of Management. [Downloadable!]
  6. Michael J. Fleming, 2003. "Measuring treasury market liquidity," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-108. [Downloadable!]
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  7. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from the U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1046-59, November. [Downloadable!] (restricted)
  8. Martin, Philippe & Rey, Hélène, 1999. "Financial Super-Markets: Size Matters for Asset Trade," CEPR Discussion Papers 2232, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Giovannini, Alberto & Piga, Gustavo, 1992. "Understanding the High Interest Rates on Italian Government Securities," CEPR Discussion Papers 720, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Bicksler, James & Chen, Andrew H, 1986. " An Economic Analysis of Interest Rate Swaps," Journal of Finance, American Finance Association, vol. 41(3), pages 645-55, July. [Downloadable!] (restricted)
  11. Arnold, Ivo & Lemmen, Jan, 2001. "The Vulnerability of Banks to Government Default Risk in the EMU," International Finance, Blackwell Publishing, vol. 4(1), pages 101-25, Spring. [Downloadable!] (restricted)
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  12. Economides, Nicholas & Siow, Aloysius, 1988. "The Division of Markets is Limited by the Extent of Liquidity (Spatial Competition with Externalities)," American Economic Review, American Economic Association, vol. 78(1), pages 108-21, March. [Downloadable!] (restricted)
  13. Danthine, Jean-Pierre & Giavazzi, Francesco & von Thadden, Ernst-Ludwig, 2000. "European Financial Markets After EMU: A First Assessment," CEPR Discussion Papers 2413, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marta Gómez-Puig, . "The Impact of Monetary Union on EU-15 Sovereign Debt Yield Spreads," Working Papers on International Economics and Finance 05-11, FEDEA. [Downloadable!]
    Other versions:
  2. Marta Gomez-Puig, 2007. "Eu-15 Sovereign Governments Cost Of Borrowing After Seven Years Of Monetary Union," IREA Working Papers 200711, University of Barcelona, Research Institute of Applied Economics, revised May 2007. [Downloadable!]
    Other versions:
  3. Kerstin Bernoth & Jürgen von Hagen & Ludger Schuknecht, 2006. "Sovereign Risk Premiums in the European Government Bond Market," Discussion Papers 151, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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