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Global bond portfolios and EMU

  • Lane, Philip R.

We examine the bilateral composition of international bond portfolios for the euro area and the individual EMU member countries. We find considerable support for “euro area 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 and inward bond investments vis-à-vis external counterparties. At the aggregate level, it is those countries physically closest to the euro area that are both the most important destinations and sources for external bond investment vis-à-vis the euro area. Our empirical results support the notion that financial regionalization is the leading force underlying financial globalization. JEL Classification: E4, F2, F3, F4

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Paper provided by European Central Bank in its series Working Paper Series with number 0553.

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Date of creation: Nov 2005
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Handle: RePEc:ecb:ecbwps:20050553
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  1. Philip R. Lane, 2006. "Global Bond Portfolios and EMU," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
  2. Philippe Martin & H=E9l=E8ne Rey=, 2001. "Financial Super-Markets: Size Matters for Asset Trade," International Finance 0012001, EconWPA.
  3. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  7. John Y. Campbell & Luis M. Viceira & Joshua S. White, 2002. "Foreign Currency for Long-Term Investors," NBER Working Papers 9075, National Bureau of Economic Research, Inc.
  8. 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.
  9. 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.
  10. 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.
  11. Philip R. Lane, 2006. "The Real Effects of EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp115, IIIS.
  12. Marco Pagano & Ernst-Ludwig von Thadden, 2004. "The European Bond Markets under EMU," CSEF Working Papers 126, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  13. P Martin & H Rey, 2000. "Financial Integration and Asset Returns," CEP Discussion Papers dp0451, Centre for Economic Performance, LSE.
  14. 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.
  15. Philip R. Lane & Gian-Maria Milesi-Ferretti, 2003. "International Financial Integration," IMF Working Papers 03/86, International Monetary Fund.
  16. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "International Investment Patterns," The Institute for International Integration Studies Discussion Paper Series iiisdp024, IIIS.
  17. 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.
  18. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
  19. 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.
  20. Devereux, M.B. & Lane, P.R., 2002. "Understanding Bilateral Exchange Rate Volatility," CEG Working Papers 20025, Trinity College Dublin, Department of Economics.
  21. Obstfeld, Maurice, 2004. "External Adjustment," Center for International and Development Economics Research, Working Paper Series qt7bw468wx, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  22. repec:hal:wpaper:halshs-00590777 is not listed on IDEAS
  23. Lane, P & Honohan, P, 1999. "Pegging To The Dollar And The Euro," Trinity Economics Papers 996, Trinity College Dublin, Department of Economics.
  24. 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.
  25. 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.
  26. Ilmanen, Antti, 1995. " Time-Varying Expected Returns in International Bond Markets," Journal of Finance, American Finance Association, vol. 50(2), pages 481-506, June.
  27. Chen, Nai-Fu, 1991. " Financial Investment Opportunities and the Macroeconomy," Journal of Finance, American Finance Association, vol. 46(2), pages 529-54, June.
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