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Financial integration before and after the crisis: Euler equations (re)visit European Union

Tomislav Globan and Petar Sorić

No 1702, EFZG Working Papers Series from Faculty of Economics and Business, University of Zagreb

Abstract: This paper offers one of the rare applications of various types of Euler equation tests to estimate the degree of financial integration of 28 EU countries with the Eurozone. The analysis is done separately for risk-free and risky assets in three types of financial markets (bond, stock and money markets). In order to examine whether the recent crisis impacted the levels of financial integration in EU member states, all models were estimated for the entire period of known quarterly data (1995-2014), as well as for the pre-crisis period only. We construct an Euler integration index (EII) that measures the integration level of countries across financial markets and show that the old member states (OMS) recorded higher integration levels than the new member states (NMS) in the pre-crisis period, while the crisis considerably decreased the gap, resulting even with NMS surpassing the OMS in EII values.

Keywords: consumption; crisis; Euler equation; European Union; financial integration (search for similar items in EconPapers)
JEL-codes: E21 E44 F15 F36 (search for similar items in EconPapers)
Pages: 41
Date: 2017-04-03
New Economics Papers: this item is included in nep-eec and nep-mac
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Downloads: (external link) First version, 2017 (application/pdf)

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