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Financial integration in Europe through the lens of composite indicators

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  • Hoffmann, Peter
  • Kremer, Manfred
  • Zaharia, Sonia

Abstract

This paper develops price- and quantity-based composite indicators of financial integration for the euro area. We develop a novel method that homogenises information from different market segments and benchmarks them to a state of perfect integration. The time-series development of both indicators shows that the global financial crisis and the ensuing sovereign debt crisis in the euro area led to considerable financial fragmentation from which the monetary union has not yet fully recovered. In a set of panel regressions for 19 member states, we find a significant positive association between financial integration and economic growth.

Suggested Citation

  • Hoffmann, Peter & Kremer, Manfred & Zaharia, Sonia, 2020. "Financial integration in Europe through the lens of composite indicators," Economics Letters, Elsevier, vol. 194(C).
  • Handle: RePEc:eee:ecolet:v:194:y:2020:i:c:s0165176520302226
    DOI: 10.1016/j.econlet.2020.109344
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    Cited by:

    1. Gabriela Castro & José R. Maria & Paulo Júlio & Ricardo Mourinho Félix, 2015. "Financial Fragmentation Shocks," Working Papers w201508, Banco de Portugal, Economics and Research Department.

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    More about this item

    Keywords

    Composite indicator; Economic growth; European monetary union; Financial integration; Financial stress;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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