Measuring European Financial Integration
98 Pages Posted: 16 Aug 2005
There are 2 versions of this paper
Measuring European Financial Integration
Measuring European Financial Integration
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: Suggested Citation
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