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Monetary Integration and the Cost of Borrowing

  • Marta Gomez Puig

    (Universitat de Barcelona)

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 Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 134.

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Length: 47 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:bar:bedcje:2005134
Contact details of provider: Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
Web page: http://www.ere.ub.es
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