EMU and European government bond market integration

Pilar Abad, Helena Chuliá and Marta Gómez-Puig

No 1079, Working Paper Series from European Central Bank

Abstract: The main objective of this paper is to study whether the introduction of the euro had an impact on the degree of integration of European Government bond markets. We adopt the CAPM-based model of Bekaert and Harvey (1995) to compare, from the beginning of Monetary Union until June 2008, the differences in the relative importance of two sources of systemic risk (world and Eurozone risk) on Government bond returns, in the two groups of countries (EMU and non-EMU) in EU-15. Our empirical evidence suggests that the impact of the introduction of the euro on the degree of integration of European Government bond markets was important. The markets of the countries that share a monetary policy are less vulnerable to the influence of world risk factors, and more vulnerable to EMU risk factors. However, euro markets are only partially integrated, since they are still segmented and present differences in market liquidity or default risk. For their part, the countries that decided to stay out of the Monetary Union present a higher vulnerability to external risk factors. JEL Classification: E44, F36, G15

Keywords: bond markets integration; monetary integration; sovereign securities markets (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (20)

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Journal Article: EMU and European government bond market integration (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091079

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