Consumption Smoothing and Financial Integration in the European Union

Michael Haliassos and Costas Christou

Manchester School, 2000, vol. 68, issue 6, 637-658

Abstract: In this paper we explore the likely implications of financial integration for intertemporal consumption smoothing in member countries. We uncover an intriguing pattern of excess sensitivity of consumption to current income in EU countries prior to integration using two procedures which handle most known time series estimation problems. We then relate this pattern to characteristics of banking sectors, using nonparametric tests which control for several such characteristics, and discuss likely implications of removing impediments to entry of foreign banks. Although conclusions about convergence following financial integration are less optimistic than previously thought, they also point to the need for broad financial integration.

Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manchs:v:68:y:2000:i:6:p:637-658

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