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EMU, EU, capital market integration and consumption smoothing

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  • Melitz, Jacques
  • Christev, Atanas

Abstract

This empirical study of the impact of EMU on capital market integration and consumption smoothing comes to three conclusions: first, EMU promotes members? holdings of foreign assets and foreign liabilities; second, no benefits of consumption smoothing result; third, EU membership, not a single money, nevertheless increases consumption smoothing. The source of this last influence on consumption smoothing is an important issue. Theoretically it could come from more tradable capital through greater price competition, more contestable home markets and the greater harmonization of regulations. There is also a seeming conflict between our results and those of one strand of the literature. However, the relevant writings concentrate on the effects of asymmetric output shocks while we study the unconditional impact of international portfolio di-versification in the presence of all shocks. This can explain the difference.

Suggested Citation

  • Melitz, Jacques & Christev, Atanas, 2010. "EMU, EU, capital market integration and consumption smoothing," CEPR Discussion Papers 7776, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7776
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    More about this item

    Keywords

    Capital market integration; Consumption smoothing; Currency union; European monetary union; European union;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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