Inhomogeneous Financial Markets in a Low Interest Rate Environment—A Cluster Analysis of Eurozone Economies

Tibor Tatay (), Zsanett Orlovits and Zsuzsanna Novák
Additional contact information
Tibor Tatay: Department of Economic Analyses, Széchenyi István University, HU9026 Gyor, Hungary
Zsanett Orlovits: Department of Economics, Faculty of Economic and Social Sciences, Budapest University of Technology and Economics, HU1111 Budapest, Hungary
Zsuzsanna Novák: Department of Finance, Faculty of Economic and Social Sciences, Budapest University of Technology and Economics, HU1111 Budapest, Hungary

Risks, 2022, vol. 10, issue 10, 1-22

Abstract: In the present paper, we investigate the financial homogeneity of the euro area economies by contrasting eurozone countries’ responses to monetary policy steps to the theoretical assumptions of the liquidity trap phenomenon. Our assumption is that the euro area economies are not completely homogeneous. Hence, in a zero-interest rate environment, the asset holding decisions of economic agents exhibit detectable differences across countries. We verify our assumptions using Eurostat data. We use the financial asset stocks of the euro area countries to cluster the countries concerned. Previous literature has not examined changes in the ratio of financial assets to GDP, nor differences in structural changes in the total stock of financial assets under the zero lower bound. The paper uses k-centers cluster analysis based on Euclidean distance for detecting changes in the portfolio holdings of eurozone economic actors owing to economic crises and monetary policy responses. The results confirm that euro area financial markets are fragmented. There are significant differences across asset markets of different Eurozone countries, both during and after the crisis. Despite some similarities in the portfolio rearrangement across countries, the ECB’s monetary policy does not have a uniform impact on euro area financial markets, and notable differences prevail in the financial asset structures of the economies concerned.

Keywords: fragmented financial markets; Eurozone; portfolio structure; liquidity preference; zero lower bound (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2227-9091/10/10/192/pdf (application/pdf)
https://www.mdpi.com/2227-9091/10/10/192/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:10:y:2022:i:10:p:192-:d:933771

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().