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Measuring financial integration in the euro area

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Author Info

  • Lieven Baele
  • Annalisa Ferrando
  • Peter Hördahl
  • Elizaveta Krylova
  • Cyril Monnet

Abstract

In this paper, we present a set of specific measures to quantify the state and evolution of financial integration in the euro area. Five key markets are considered, namely the money, corporate bond, government bond, credit and equity markets. Building upon the law of one price, we developed two types of indicators that can be broadly categorised as price-based and news-based measures. We complemented these measures by a number of quantity-based indicators, mainly related to the evolution of the home bias. Results indicate that the unsecured money market is fully integrated, while integration is reasonably high in the government and corporate bond market, as well as in the equity markets. The credit market is among the least integrated, especially in the short-term segment.

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Bibliographic Info

Paper provided by European Central Bank in its series Occasional Paper Series with number 14.

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Length: 48 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:ecb:ecbops:20040014

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Related research

Keywords: financial integration; EMU; law of one price.;

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  1. Adalbert Winkler & Francesco Mazzaferro & Carolin Nerlich & Christian Thimann, 2004. "Official dollarisation/euroisation - motives, features and policy implications of current cases," Occasional Paper Series 11, European Central Bank.
  2. Francesco Mazzaferro & Arnaud Mehl & Michael Sturm & Christian Thimann & Adalbert Winkler, 2002. "Economic relations with regions neighbouring the euro area in the ‘euro time zone," Occasional Paper Series 07, European Central Bank.
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