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EMU, EU, Capital Market Integration and Consumption Smoothing

  • Atanas CHRISTEV

    (Crest)

  • Jacques MELITZ

    (Crest)

This empirical study of the impact of EMU on capital market integration and consumptionsmoothing comes to three conclusions: first, EMU promotes members’ holdings of foreign assetsand foreign liabilities; second, no benefits of consumption smoothing result; third, EU membership,not a single money, nevertheless increases consumption smoothing. The source of this lastinfluence on consumption smoothing is an important issue. Theoretically it could come frommore tradable capital through greater price competition, more contestable home markets and thegreater harmonization of regulations. There is also a seeming conflict between our results andthose of one strand of the literature. However, the relevant writings concentrate on the effects ofasymmetric output shocks while we study the unconditional impact of international portfolio diversificationin the presence of all shocks. This can explain the difference.

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2010-06.

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Date of creation: 2010
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Handle: RePEc:crs:wpaper:2010-06
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  1. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," IDB Publications (Working Papers) 6511, Inter-American Development Bank.
  2. Yan Bai & Jing Zhang, 2009. "Financial Integration and International Risk Sharing," Working Papers 594, Research Seminar in International Economics, University of Michigan.
  3. Menzie D. Chinn & Hiro Ito, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," NBER Working Papers 11370, National Bureau of Economic Research, Inc.
  4. Artis, Michael J & Hoffmann, Mathias, 2007. "Declining Home Bias and the Increase in International Risk Sharing: Lessons from European Integration," CEPR Discussion Papers 6617, C.E.P.R. Discussion Papers.
  5. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31, March.
  6. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  7. Kollmann, Robert, 2009. "Household Heterogeneity and the Real Exchange Rate: Still a Puzzle," CEPR Discussion Papers 7301, C.E.P.R. Discussion Papers.
  8. Martin Evans and Viktoria Hnatkovska, 2006. "Financial Integration, Macroeconomic Volatility and Welfare," Working Papers gueconwpa~06-06-13, Georgetown University, Department of Economics.
  9. Huizinga, Harry & Zhu, Dantao, 2004. "Domestic and International Finance: How Do They Affect Consumption Smoothing?," CEPR Discussion Papers 4677, C.E.P.R. Discussion Papers.
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  11. Tharavanij, Piyapas, 2007. "Capital Market and Business Cycle Volatility," MPRA Paper 4952, University Library of Munich, Germany.
  12. Sebastian Edwards, 2000. "Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies," NBER Books, National Bureau of Economic Research, Inc, number edwa00-1, August.
  13. Asdrubali, Pierfederico & Sorensen, Bent E & Yosha, Oved, 1996. "Channels of Interstate Risk Sharing: United States 1963-1990," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1081-1110, November.
  14. repec:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g708n2m4m is not listed on IDEAS
  15. Claudia M. Buch & Jörg Döpke & Christian Pierdzioch, 2002. "Financial Openness and Business Cycle Volatility," Kiel Working Papers 1121, Kiel Institute for the World Economy.
  16. Aidan Corcoran, 2008. "International Financial Integration and Consumption Risk Sharing," The Institute for International Integration Studies Discussion Paper Series iiisdp241, IIIS.
  17. Ravn, Morten O, 2001. "Consumption Dynamics and Real Exchange Rate," CEPR Discussion Papers 2940, C.E.P.R. Discussion Papers.
  18. Canning, David, 1998. "A database of world infrastructure stocks, 1950-95," Policy Research Working Paper Series 1929, The World Bank.
  19. Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2009. "Does financial globalization promote risk sharing?," Journal of Development Economics, Elsevier, vol. 89(2), pages 258-270, July.
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