Measuring financial integration in the euro area

Lieven Baele (), Annalisa Ferrando (), Peter Hördahl (), Elizaveta Krylova () and Cyril Monnet ()
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Annalisa Ferrando: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html
Peter Hördahl: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html
Elizaveta Krylova: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany., http://www.ecb.europa.eu/home/html/index.en.html

No 14, Occasional Paper Series from European Central Bank

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. (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 G18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-fin and nep-fmk
Date: 2004-05
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