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Global Bond Portfolios and EMU

  • Philip R. Lane

    (IIIS and Economics Department, Trinity College Dublin and CEPR)

This paper examines the bilateral composition of international bond portfolios for the euro area and the individual EMU member countries. I find considerable support for euroarea 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-à-vis external counterparties. My 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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Article provided by International Journal of Central Banking in its journal International Journal of Central Banking.

Volume (Year): 2 (2006)
Issue (Month): 2 (May)
Pages:

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Handle: RePEc:ijc:ijcjou:y:2006:q:2:a:1
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  1. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley.
  2. Martin, Philippe & Rey, Hélène, 2000. "Financial Super-Markets: Size Matters for Asset Trade," Center for International and Development Economics Research, Working Paper Series qt0dr2z6p9, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  3. Philip R. Lane & Gian-Maria Milesi-Ferretti, 2003. "International Financial Integration," IMF Working Papers 03/86, International Monetary Fund.
  4. Andrew K. Rose & Mark M. Spiegel, 2004. "A Gravity Model of Sovereign Lending: Trade, Default, and Credit," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 50-63, June.
  5. Michael B. Devereux & Philip R. Lane, 2002. "Understanding Bilateral Exchange Rate Volatility," Trinity Economics Papers 200211, Trinity College Dublin, Department of Economics.
  6. Martin, Philippe & Rey, Hélène, 1999. "Financial Integration and Asset Returns," CEPR Discussion Papers 2282, C.E.P.R. Discussion Papers.
  7. Lane, Philip R., 2005. "Global bond portfolios and EMU," Working Paper Series 0553, European Central Bank.
  8. Robert Anderton & Filippo di Mauro & Fabio Moneta, 2004. "Understanding the impact of the external dimension on the euro area - trade, capital flows and other international macroeconomic linkages," Occasional Paper Series 12, European Central Bank.
  9. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "International Investment Patterns," CEPR Discussion Papers 4499, C.E.P.R. Discussion Papers.
  10. Burger, John D. & Warnock, Francis E., 2007. "Foreign participation in local currency bond markets," Review of Financial Economics, Elsevier, vol. 16(3), pages 291-304.
  11. Sylvester Eijffinger & Jan J.G. Lemmen (ed.), 2003. "International Financial Integration," Books, Edward Elgar, volume 0, number 2093, July.
  12. Maurico Obstfeld, 2004. "External adjustment," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 140(4), pages 541-568, December.
  13. John Y. Campbell & Luis M. Viceira & Joshua S. White, 2003. "Foreign Currency for Long-Term Investors," Economic Journal, Royal Economic Society, vol. 113(486), pages C1-C25, March.
  14. 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.
  15. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "The International Equity Holdings of Euro Area Investors," The Institute for International Integration Studies Discussion Paper Series iiisdp104, IIIS.
  16. Honohan, Patrick & Lane, Philip R, 1999. "Pegging to the Dollar and the Euro," International Finance, Wiley Blackwell, vol. 2(3), pages 379-410, November.
  17. Chen, Nai-Fu, 1991. " Financial Investment Opportunities and the Macroeconomy," Journal of Finance, American Finance Association, vol. 46(2), pages 529-54, June.
  18. 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.
  19. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  20. Marco Pagano, 2004. "The European Bond Markets under EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 531-554, Winter.
  21. 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.
  22. 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.
  23. repec:hal:wpaper:halshs-00590777 is not listed on IDEAS
  24. Lane, Philip R., 2006. "The Real Effects of EMU," CEPR Discussion Papers 5536, C.E.P.R. Discussion Papers.
  25. Ilmanen, Antti, 1995. " Time-Varying Expected Returns in International Bond Markets," Journal of Finance, American Finance Association, vol. 50(2), pages 481-506, June.
  26. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
  27. Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, vol. 45(4-6), pages 783-796, May.
  28. 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.
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