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The Euro and Financial Integration

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  • Philip Lane
  • Sébastien Wälti

Abstract

We provide a quantitative analysis of the impact of the euro on European financial integration. We consider both volume- and price-based indicators. In general, we find evidence that common membership of the euro area strengthens bilateral financial linkages. However, we emphasize that EMU has only been one innovation driving European financial integration in recent years, with global factors also increasingly important.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp139.

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Date of creation: 25 May 2006
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Handle: RePEc:iis:dispap:iiisdp139

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  1. Helene Rey & Pierre Olivier Gourinchas, 2005. "International Financial Adjustment," 2005 Meeting Papers 169, Society for Economic Dynamics.
  2. Fratzscher, Marcel, 2001. "Financial market integration in Europe: on the effects of EMU on stock markets," Working Paper Series 0048, European Central Bank.
  3. Baldwin, Richard E., 2006. "The euro’s trade effects," Working Paper Series 0594, European Central Bank.
  4. Chinn, Menzie David & Frankel, Jeffrey A., 2006. "Will the Euro Eventually Surpass the Dollar As Leading International Reserve Currency?," Santa Cruz Department of Economics, Working Paper Series qt4hz4n9pb, Department of Economics, UC Santa Cruz.
  5. Robin Brooks & Marco Del Negro, 2003. "International stock returns and market integration: A regional perspective," Working Paper 2002-20, Federal Reserve Bank of Atlanta.
  6. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
  7. Philip R. Lane & Gian Maria Milesi-Ferretti, 2005. "Financial Globalisation and Exchange Rates," The Institute for International Integration Studies Discussion Paper Series iiisdp044, IIIS.
  8. Thomas Flavin, 2004. "The effect of the Euro on country versus industry portfolio diversification," Economics, Finance and Accounting Department Working Paper Series n1411004, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  9. Lane, Philip R., 2006. "The Real Effects of EMU," CEPR Discussion Papers 5536, C.E.P.R. Discussion Papers.
  10. Dušan Isakov & Frédéric Sonney, 2003. "Are practitioners right? On the relative importance of industrial factors in international stock returns," FAME Research Paper Series rp72, International Center for Financial Asset Management and Engineering.
  11. Griffin, John M. & Andrew Karolyi, G., 1998. "Another look at the role of the industrial structure of markets for international diversification strategies," Journal of Financial Economics, Elsevier, vol. 50(3), pages 351-373, December.
  12. Hardouvelis, Gikas A & Malliaropoulos, Dimitrios & Priestley, Richard, 1999. "EMU and European Stock Market Integration," CEPR Discussion Papers 2124, C.E.P.R. Discussion Papers.
  13. David Barr & Francis Breedon & David Miles, 2003. "Life on the outside: economic conditions and prospects outside euroland," Economic Policy, CEPR & CES & MSH, vol. 18(37), pages 573-613, October.
  14. Marco Pagano, 2004. "The European Bond Markets under EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 531-554, Winter.
  15. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "International Investment Patterns," CEPR Discussion Papers 4499, C.E.P.R. Discussion Papers.
  16. Kpate Adjaouté, 2004. "Equity Returns and Integration: Is Europe Changing?," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 555-570, Winter.
  17. Lane, P & Honohan, P, 1999. "Pegging To The Dollar And The Euro," Trinity Economics Papers 996, Trinity College Dublin, Department of Economics.
  18. Lieven Baele & Annalisa Ferrando & Peter Hördahl & Elizaveta Krylova & Cyril Monnet, 2004. "Measuring financial integration in the euro area," Occasional Paper Series 14, European Central Bank.
  19. Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
  20. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
  21. Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2005. "'Some contagion, some interdependence': More pitfalls in tests of financial contagion," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1177-1199, December.
  22. Olivier Blanchard, 2007. "Adjustment within the euro. The difficult case of Portugal," Portuguese Economic Journal, Springer, vol. 6(1), pages 1-21, April.
  23. Cappiello, Lorenzo & Hördahl, Peter & Kadareja, Arjan & Manganelli, Simone, 2006. "The impact of the euro on financial markets," Working Paper Series 0598, European Central Bank.
  24. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-44, June.
  25. Marco Del Negro & Robin Brooks, 2002. "International Stock Returns and Market Integration," IMF Working Papers 02/202, International Monetary Fund.
  26. Moerman, Gerard, 2004. "Diversification in euro area stock markets: country versus industry," Working Paper Series 0327, European Central Bank.
  27. Kpate ADJAOUTÉ & Jean-Pierre DANTHINE, 2003. "European Financial Integration and Equity Returns: A Theory-Based Assessment," FAME Research Paper Series rp84, International Center for Financial Asset Management and Engineering.
  28. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
  29. Heston, Steven L. & Rouwenhorst, K. Geert, 1994. "Does industrial structure explain the benefits of international diversification?," Journal of Financial Economics, Elsevier, vol. 36(1), pages 3-27, August.
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Citations

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Cited by:
  1. Barry Eichengreen, 2008. "Sui Generis EMU," European Economy - Economic Papers 303, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Iulia Siedschlag, 2008. "Macroeconomic Differentials and Adjustment in the Euro Area," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  3. Agustín Bénétrix, 2009. "The anatomy of large valuation episodes," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(3), pages 489-511, October.
  4. Philip R. Lane, 2008. "EMU and Financial Market Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp248, IIIS.
  5. Philip R. Lane, 2008. "EMU and Financial Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp272, IIIS.
  6. Schmitz, Birgit & von Hagen, Jürgen, 2009. "Current Account Imbalances and Financial Integration in the Euro Area," CEPR Discussion Papers 7262, C.E.P.R. Discussion Papers.

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