The Geography of Asset Trade and the Euro: Insiders and Outsiders
Nicolas Coeurdacier and
Philippe Martin ()
No 6032, CEPR Discussion Papers from C.E.P.R. Discussion Papers
This paper analyzes the determinants of cross-border asset trade on cross-country data and a Swedish data set. We focus our analysis on the effect of the euro for the determinants of bond trade, equity and banking assets. With the help of a theoretical model, we attempt to disentangle the different effects that the euro may have had on asset holdings for both euro zone countries and countries outside of the euro zone such as Sweden. We find evidence that the euro has implied 1) a unilateral financial liberalization which makes it cheaper for all countries to buy euro zone assets. For bonds and equity holdings, this would translate into approximately 14% and 17% decrease in transaction costs. Using Swedish data, we find that this effect of the euro is larger for flows than for stocks. 2) a preferential financial liberalization which on top of the previous effect has decreased transaction costs inside the euro zone by approximately 17% and 10% for bonds and equity respectively. 3) a diversion effect due to the fact that lower transaction costs inside the euro zone have led euro countries to purchase less equity from outside the euro zone. Our empirical analysis also suggests that the elasticity of substitution between bonds inside the euro zone is higher than between bonds denominated in different currencies. We illustrate this effect for transaction costs generated by the difference in the legal system.
Keywords: euro; gravity equation; international asset trade (search for similar items in EconPapers)
JEL-codes: F30 F36 F41 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed
Downloads: (external link)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at email@example.com
Chapter: The Geography of Asset Trade and the Euro: Insiders and Outsiders (2009)
Journal Article: The geography of asset trade and the euro: Insiders and outsiders (2009)
Working Paper: The geography of asset trade and the euro: insiders and outsiders (2007)
Working Paper: The Geography of Asset Trade and the Euro: Insiders and Outsiders (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6032
Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=6032
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().