Evaluating capital mobility in the EU: a new approach using swaps data

Isabel Vieira ()

The European Journal of Finance, 2003, vol. 9, issue 5, 514-532

Abstract: The level of capital mobility prevailing within a group of core European Union (EU) countries is evaluated by means of cointegration-based tests of the covered interest parity (CIP). Unlike previous studies, this one concentrates on long maturities, investigating three to ten-year assets, and employing swap rates as a means of covering foreign exchange risk. Although CIP has not been previously assessed for EU long-term interest rates, such evaluation has practical interest. In fact, given EU member states' scarcity of mechanisms to react to asymmetric shocks, financial markets may become one major source of adjustment and stabilization. To this end, it is the mobility of long-term capital that is of critical importance. The analysis in this paper suggests that long-term financial flows appear to be completely unrestrained only between domestic Dutch and German markets.

Keywords: financial integration; capital mobility; covered interest parity (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (6)

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DOI: 10.1080/1351847032000082817

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