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Economic Integration and Financial Stability; A European Perspective

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  • Gianni De Nicolo
  • Alexander F. Tieman

Abstract

This paper assesses changes in synchronization of real activity and financial market integration in Western Europe and evaluates their implications for financial stability. We find increased synchronization of real activity since the early 1980s and increased equity markets integration since the early 1990s. We also find that measures of systemic risk at large European financial institutions have not declined during the period 1990-2004 and that bank systemic risk profiles have converged. At the same time, the sensitivity of bank and insurance systemic risk measures to common real and financial shocks has increased in most countries. Overall, these results suggest that the integration process does not necessarily entail an unambiguously positive effect on financial stability.

Suggested Citation

  • Gianni De Nicolo & Alexander F. Tieman, 2006. "Economic Integration and Financial Stability; A European Perspective," IMF Working Papers 06/296, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/296
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    Cited by:

    1. Saldías, Martín, 2013. "A market-based approach to sector risk determinants and transmission in the euro area," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4534-4555.
    2. Jorge A Chan-Lau & Srobona Mitra & Li L Ong, 2007. "Contagion Risk in the International Banking System and Implications for London As a Global Financial Center," IMF Working Papers 07/74, International Monetary Fund.
    3. Kimie Harada & Takatoshi Ito & Shuhei Takahashi, 2010. "Is the Distance to Default a Good Measure in Predicting Bank Failures? Case Studies," NBER Working Papers 16182, National Bureau of Economic Research, Inc.
    4. Iryna V. Ivaschenko & Gianni De Nicolo, 2008. "Financial Integration and Risk-Adjusted Growth Opportunities," IMF Working Papers 08/126, International Monetary Fund.
    5. Saldías, Martín, 2013. "Systemic risk analysis using forward-looking Distance-to-Default series," Journal of Financial Stability, Elsevier, vol. 9(4), pages 498-517.
    6. Horvath, Roman & Petrovski, Dragan, 2013. "International stock market integration: Central and South Eastern Europe compared," Economic Systems, Elsevier, vol. 37(1), pages 81-91.
    7. Jappelli, Tullio & Pagano, Marco, 2008. "Financial market integration under EMU," CFS Working Paper Series 2008/33, Center for Financial Studies (CFS).
    8. International Monetary Fund, 2007. "Republic of Croatia; Selected Issues," IMF Staff Country Reports 07/82, International Monetary Fund.
    9. International Monetary Fund, 2006. "Iceland; Selected Issues," IMF Staff Country Reports 06/297, International Monetary Fund.
    10. Carlson Mark A & King Thomas & Lewis Kurt, 2011. "Distress in the Financial Sector and Economic Activity," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-31, June.
    11. Harada, Kimie & Ito, Takatoshi, 2011. "Did mergers help Japanese mega-banks avoid failure? Analysis of the distance to default of banks," Journal of the Japanese and International Economies, Elsevier, vol. 25(1), pages 1-22, March.
    12. International Monetary Fund, 2009. "Uganda; Selected Issues," IMF Staff Country Reports 09/37, International Monetary Fund.
    13. Harada, Kimie & Ito, Takatoshi & Takahashi, Shuhei, 2013. "Is the Distance to Default a good measure in predicting bank failures? A case study of Japanese major banks," Japan and the World Economy, Elsevier, vol. 27(C), pages 70-82.
    14. Francesco Vallascas & Kevin Keasey, 2013. "The Volatility of European Banking Systems: A Two-Decade Study," Journal of Financial Services Research, Springer;Western Finance Association, vol. 43(1), pages 37-68, February.
    15. Srobona Mitra & Elena H Duggar, 2007. "External Linkages and Contagion Risk in Irish Banks," IMF Working Papers 07/44, International Monetary Fund.

    More about this item

    Keywords

    Financial stability; Europe; European Union; Economic models; Economic integration; equation; risk profiles; insurance companies; correlation; probability; Financial Aspects of Economic Integration;

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