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EMU, EU, Capital Market Integration and Consumption Smoothing

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  • Atanas CHRISTEV

    (Crest)

  • Jacques MELITZ

    (Crest)

Abstract

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

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2010-06.

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Date of creation: 2010
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Handle: RePEc:crs:wpaper:2010-06

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  17. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g708n2m4m is not listed on IDEAS
  18. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
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