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Monetary Integration And The Cost Of Borrowing

  • Marta Gómez-Puig

    (Universitat de Barcelona and Barcelona Stock Exchange)

With the beginning of the European Monetary Union (EMU), euro-area sovereign securities’ adjusted spreads over Germany (corrected from the foreign exchange risk) experienced an increase that caused a lower than expected decline in borrowing costs. The objective of this paper is to study what explains that rising. In particular, if it took place a change in the price assigned by markets to domestic (credit risk and/or market liquidity) or to international risk factors. The empirical evidence supports the idea that a change in the market value of liquidity occurred with the EMU. International and default risk play a smaller role.

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Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 05-05.

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Length: 36 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:aee:wpaper:0505
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