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Global Bond Portfolios and EMU

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  • Philip R. Lane

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 bond investments vis-a-vis external counterparties. Our empirical results underline the impact of currency union on financial integration and support the notion that financial regionalization is the leading force underlying financial globalization.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp168.

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Date of creation: 02 Aug 2006
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Handle: RePEc:iis:dispap:iiisdp168

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  1. Pagano, Marco & von Thadden, Ernst-Ludwig, 2004. "The European Bond Markets Under EMU," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4779, C.E.P.R. Discussion Papers.
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  7. Philip R. Lane, 2006. "Global Bond Portfolios and EMU," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp168, IIIS.
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  9. repec:hal:wpaper:halshs-00590777 is not listed on IDEAS
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  11. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2003. "International Financial Integration," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3769, C.E.P.R. Discussion Papers.
  12. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
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  17. Ilmanen, Antti, 1995. " Time-Varying Expected Returns in International Bond Markets," Journal of Finance, American Finance Association, American Finance Association, vol. 50(2), pages 481-506, June.
  18. Lane, Philip R., 2006. "The Real Effects of EMU," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5536, C.E.P.R. Discussion Papers.
  19. P Martin & H Rey, 2000. "Financial Integration and Asset Returns," CEP Discussion Papers dp0451, Centre for Economic Performance, LSE.
  20. Maurico Obstfeld, 2004. "External adjustment," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 140(4), pages 541-568, December.
  21. André Geis & Arnaud Mehl & Stefan Wredenborg, 2004. "The international role of the euro - evidence from bonds issued by non-euro area residents," Occasional Paper Series 18, European Central Bank.
  22. Christian Broda & John Romalis, 2011. "Identifying the Relationship Between Trade and Exchange Rate Volatility," NBER Chapters, in: Commodity Prices and Markets, East Asia Seminar on Economics, Volume 20, pages 79-110 National Bureau of Economic Research, Inc.
  23. Steven J. Davis & Jeremy Nalewaik & Paul Willen, 2000. "On the Gains to International Trade in Risky Financial Assets," NBER Working Papers 7796, National Bureau of Economic Research, Inc.
  24. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
  25. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "The International Equity Holdings of Euro Area Investors," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp104, IIIS.
  26. Michael B. Devereux & Philip R. Lane, 2002. "Understanding Bilateral Exchange Rate Volatility," Trinity Economics Papers, Trinity College Dublin, Department of Economics 200211, Trinity College Dublin, Department of Economics.
  27. 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.
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