Measuring European Financial Integration

98 Pages Posted: 16 Aug 2005

See all articles by Lieven Baele

Lieven Baele

Tilburg University - Department of Finance

Annalisa Ferrando

European Central Bank (ECB)

Peter Hördahl

Bank for International Settlements (BIS)

Elizaveta Krylova

European Central Bank (ECB)

Cyril Monnet

University of Bern

Multiple version iconThere are 2 versions of this paper

Date Written: April 2004

Abstract

In this paper, we present a set of specific measures to quantify the state and evolution of financial integration in the euro area. Five key markets are considered, namely the money, corporate bond, government bond, credit and equity markets. Building upon the law of one price, we developed two types of indicators that can be broadly categorised as price-based and news-based measures. We complemented these measures by a number of quantity-based indicators, mainly related to the evolution of the home bias. Results indicate that the unsecured money market is fully integrated, while integration is reasonably high in the government and corporate bond market, as well as in the equity markets. The credit market is among the least integrated, especially in the short-term segment.

Keywords: Financial integration, EMU, law of one price

JEL Classification: G12, G14, G15, G18

Suggested Citation

Baele, Lieven and Ferrando, Annalisa and Hoerdahl, Peter and Krylova, Elizaveta and Monnet, Cyril, Measuring European Financial Integration (April 2004). ECB Occasional Paper No. 14, Available at SSRN: https://ssrn.com/abstract=749045 or http://dx.doi.org/10.2139/ssrn.749045

Lieven Baele (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 3257 (Phone)
+31 13 466 2875 (Fax)

Annalisa Ferrando

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Peter Hoerdahl

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Elizaveta Krylova

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Cyril Monnet

University of Bern ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland

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