Economic Integration and Financial Stability: A European Perspective

30 Pages Posted: 12 Jan 2007

See all articles by Gianni De Nicolo

Gianni De Nicolo

Johns Hopkins University - Carey Business School; CESifo (Center for Economic Studies and Ifo Institute)

Alexander F. Tieman

International Monetary Fund (IMF)

Date Written: Janurary 2007

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.

Keywords: Financial stability, Europe, European Union, Economic models

JEL Classification: F36, G21, G22

Suggested Citation

De Nicolo, Gianni and Tieman, Alexander F., Economic Integration and Financial Stability: A European Perspective (Janurary 2007). IMF Working Paper No. 06/296. Available at SSRN: https://ssrn.com/abstract=956760

Gianni De Nicolo (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
(410) 234-4507 (Phone)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Alexander F. Tieman

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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