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Regional Versus Global Integration of Euro Zone Retail Banking Markets: Understanding the Recent Evidence from Price-Based Integration Measures

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  • Kleimeier,Stefanie
  • Sander,Harald

    (METEOR)

Abstract

This study investigates the current state of euro zone banking market integration by applying convergence and cointegration measures to mortgage and short-term corporate loan markets. These two measures of integration often lead to contradicting conclusions and are therefore comparatively analyzed. As an innovation to the literature, convergence measures are exposed to a difference-in-differences methodology which allows separating euro zone-specific from global integration effects. Our results show that euro zone-specific convergence exists mainly in the pre-EMU period whereas cointegration is especially prominent before 1993 and after 1998 but hardly present in between. Overall, we conclude that (1) in the presence of exchange rate uncertainty, cross-country convergence should focus on margins rather than rates, (2) convergence of retail banking interest rates is largely a result of integrating money and bonds markets in anticipation of the single currency and (3) a monetary union can produce (co)integration when retail rates react similarly to a single monetary policy rate. Thus, for the euro zone it appears that convergence measures provide the most information for the period leading up to the EMU whereas cointegration is more useful during the EMU period as well as prior to the ERM crisis in 1992.

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Bibliographic Info

Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 031.

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Date of creation: 2005
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Handle: RePEc:unm:umamet:2005031

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Keywords: monetary economics ;

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  1. Toolsema, Linda A. & Sturm, Jan-Egbert & Haan, Jakob de, 2002. "Convergence of pass-through from money market to lending rates in EMU countries: new evidence," CCSO Working Papers, University of Groningen, CCSO Centre for Economic Research 200206, University of Groningen, CCSO Centre for Economic Research.
  2. 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.
  3. Slaughter, Matthew J., 2001. "Trade liberalization and per capita income convergence: a difference-in-differences analysis," Journal of International Economics, Elsevier, Elsevier, vol. 55(1), pages 203-228, October.
  4. Dunne, Peter & Moore, Michael J & Portes, Richard, 2002. "Defining Benchmark Status: An Application using Euro-Area Bonds," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3490, C.E.P.R. Discussion Papers.
  5. Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports, Federal Reserve Bank of New York 99, Federal Reserve Bank of New York.
  6. Heuson, Andrea & Passmore, Wayne & Sparks, Roger, 2001. "Credit Scoring and Mortgage Securitization: Implications for Mortgage Rates and Credit Availability," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 23(3), pages 337-63, November.
  7. James W. Kolari & Donald R. Fraser & Ali Anari, 1998. "The Effects of Securitization on Mortgage Market Yields: A Cointegration Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 26(4), pages 677-693.
  8. Corvoisier, Sandrine & Gropp, Reint, 2001. "Bank Concentration and Retail Interest Rates," Working Paper Series, European Central Bank 0072, European Central Bank.
  9. Kleimeier, Stefanie & Sander, Harald, 2000. "Regionalisation versus globalisation in European financial market integration: Evidence from co-integration analyses," Journal of Banking & Finance, Elsevier, Elsevier, vol. 24(6), pages 1005-1043, June.
  10. Arturo Estrella, 2002. "Securitization and the efficacy of monetary policy," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue May, pages 243-255.
  11. Centeno, Mario & Mello, Antonio S., 1999. "How integrated are the money market and the bank loans market within the European Union?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(1), pages 75-106, January.
  12. Heinemann, Friedrich & Schüler, Martin, 2002. "How integrated are the European retail financial markets? A cointegration analysis," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 02-22, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  13. Manna, Michele, 2004. "Developing statistical indicators of the integration of the euro area banking system," Working Paper Series, European Central Bank 0300, European Central Bank.
  14. Jane katz, 1997. "Getting secure," Regional Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Sum, pages 13-17.
  15. Inês Cabral & Frank Dierick & Jukka Vesala, 2002. "Banking integration in the euro area," Occasional Paper Series 06, European Central Bank.
  16. Jones, David, 2000. "Emerging problems with the Basel Capital Accord: Regulatory capital arbitrage and related issues," Journal of Banking & Finance, Elsevier, Elsevier, vol. 24(1-2), pages 35-58, January.
  17. Brada, Josef C. & Kutan, Ali M. & Zhou, Su, 2002. "Real and monetary convergence within the European Union and between the European Union and candidate countries: A rolling cointegration approach," ZEI Working Papers B 05-2002, ZEI - Center for European Integration Studies, University of Bonn.
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Cited by:
  1. Wagenvoort, Rien & Ebner, André & Morgese Borys, Magdalena, 2009. "A factor analysis approch to measuring European loan and bond market integration," Discussion Papers in Economics, University of Munich, Department of Economics 11071, University of Munich, Department of Economics.
  2. Carmen López Andión & José Manuel Maside Sanfiz & Ma Celia López Penabad, 2010. "Co-Integration between Mortgage Markets in the Monetary Union: 1995–2008," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 60(1), pages 40-57, February.
  3. Pérez, Francisco & Arribas, Iván & Tortosa-Ausina, Emili, 2009. "Openness and geographic neutrality: How do they contribute to international banking integration?," MPRA Paper 17211, University Library of Munich, Germany.
  4. Wagenvoort, Rien & Ebner, André & Morgese Borys, Magdalena, 2009. "EFR 2009-01 A factor analysis approach to measuring European loan and bond market integration," Economic and Financial Reports, European Investment Bank, Economics Department 2009/1, European Investment Bank, Economics Department.
  5. Arribas, Iván & Pérez, Francisco & Tortosa-Ausina, Emili, 2011. "A network perspective on international banking integration," Journal of Policy Modeling, Elsevier, Elsevier, vol. 33(6), pages 831-851.

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