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International Asset Holdings and the Euro

  • Pels

    ()

    (Institute for International Integration Studies, Trinity College Dublin)

The establishment of a monetary union in Europe in 1999 has eliminated exchange rate risk within the euro area and has led to a more unified financial framework. It has been established in the literature that the euro has led to a disproportional increase in bilateral asset holdings within the euro area. This paper builds on this evidence and answers the question whether this has been a one-off effect, or whether the euro effect in intra-euro area bilateral asset holdings has changed over time. We show, using a gravity framework, that the proportional increase in bilateral asset holdings took place in the early years of the European monetary union and was a unique event. The data used are bilateral data on equity and bond holdings, provided by the Coordinated Portfolio Investment Survey of the IMF for the years 1997, and 2001 until 2006.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp331.

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Length: 27 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:iis:dispap:iiisdp331
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  1. R Portes & H Rey, 2000. "The Determinants Of Cross-Border Equity Flows," CEP Discussion Papers dp0446, Centre for Economic Performance, LSE.
  2. Coeurdacier, Nicolas & De Santis, Roberto A. & Aviat, Antonin, 2009. "Cross-Border Mergers and acquisitions: Financial and institutional forces," Working Paper Series 1018, European Central Bank.
  3. J.M.C. Santos Silva & Silvana Tenreyro, 2010. "Currency Unions in Prospect and Retrospect," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 51-74, 09.
  4. De Santis, Roberto A. & Gérard, Bruno, 2006. "Financial integration, international portfolio choice and the European Monetary Union," Working Paper Series 0626, European Central Bank.
  5. Tullio Jappelli & Marco Pagano, 2008. "Financial Market Integration under EMU," European Economy - Economic Papers 312, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  6. Alan G. Ahearne & William L. Griever & Francis E. Warnock, 2000. "Information costs and home bias: an analysis of U.S. holdings of foreign equities," International Finance Discussion Papers 691, Board of Governors of the Federal Reserve System (U.S.).
  7. Marco Pagano, 2004. "The European Bond Markets under EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 531-554, Winter.
  8. Joao Santos Silva & Silvana Tenreyro, 2009. "On the existence of the maximum likelihood estimates for Poisson regression," LSE Research Online Documents on Economics 25504, London School of Economics and Political Science, LSE Library.
  9. Spiegel, Mark M., 2009. "Monetary and financial integration: Evidence from the EMU," Journal of the Japanese and International Economies, Elsevier, vol. 23(2), pages 114-130, June.
  10. Coeurdacier, Nicolas & Martin, Philippe, 2009. "The geography of asset trade and the euro: Insiders and outsiders," Journal of the Japanese and International Economies, Elsevier, vol. 23(2), pages 90-113, June.
  11. Wooldridge, Jeffrey M., 1999. "Distribution-free estimation of some nonlinear panel data models," Journal of Econometrics, Elsevier, vol. 90(1), pages 77-97, May.
  12. 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.
  13. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers dp0701, Centre for Economic Performance, LSE.
  14. Pavlos Petroulas, 2006. "The Effect of the Euro on Foreign Direct Investment," Working Papers 48, Bank of Greece.
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