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Global bond portfolios and EMU

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  • Lane, Philip R.

Abstract

We examine the bilateral composition of international bond portfolios for the euro area and the individual EMU member countries. We find considerable support for “euro area 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 and inward bond investments vis-à-vis external counterparties. At the aggregate level, it is those countries physically closest to the euro area that are both the most important destinations and sources for external bond investment vis-à-vis the euro area. Our empirical results support the notion that financial regionalization is the leading force underlying financial globalization. JEL Classification: E4, F2, F3, F4

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0553.

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Date of creation: Nov 2005
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Handle: RePEc:ecb:ecbwps:20050553

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Keywords: bond portfolios; EMU; financial integration;

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  1. Devereux, M.B. & Lane, P.R., 2002. "Understanding Bilateral Exchange Rate Volatility," CEG Working Papers 20025, Trinity College Dublin, Department of Economics.
  2. Chen, Nai-Fu, 1991. " Financial Investment Opportunities and the Macroeconomy," Journal of Finance, American Finance Association, vol. 46(2), pages 529-54, June.
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  24. repec:hal:wpaper:halshs-00590777 is not listed on IDEAS
  25. 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.
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