scholarly journals From home bias to Euro bias: Disentangling the effects of monetary union on the European financial markets

2010 ◽  
Vol 62 (5) ◽  
pp. 347-366 ◽  
Author(s):  
Faruk Balli ◽  
Syed Abul Basher ◽  
Hatice Ozer-Balli
Keyword(s):  
Financial Markets ◽  
Monetary Union ◽  
Home Bias

scholarly journals Welfare Reversals in a Monetary Union

2014 ◽  
Vol 6 (4) ◽  
pp. 246-290 ◽  
Author(s):  
Stéphane Auray ◽  
Aurélien Eyquem
Keyword(s):  
Financial Markets ◽  
Monetary Union ◽  
Risk Sharing ◽  
Home Bias ◽  
Scale Model ◽  
Fiscal Policies ◽  
Medium Scale ◽  
Asymmetric Shocks ◽  
Inflation Rates ◽  
Carry Over

We show that welfare can be lower under complete financial markets than under autarky in a monetary union with home bias, sticky prices, and asymmetric shocks. Such a monetary union is a second-best environment in which the structure of financial markets affects risk-sharing but also shapes the dynamics of inflation rates and the welfare costs from nominal rigidities. Welfare reversals arise for a variety of empirically plausible degrees of price stickiness when the Marshall-Lerner condition is met. These results carry over a model with active fiscal policies, and hold within a medium-scale model, although to a weaker extent. (JEL E31, E52, E62, F33, F41)

Getting the Core: A Neo‐institutionalist Approach to the EMU

1995 ◽  
Vol 30 (3) ◽  
pp. 347-369 ◽  
Author(s):  
Miriam L. Campanella
Keyword(s):  
Financial Markets ◽  
Monetary Union ◽  
Trade Agreement ◽  
Maastricht Treaty ◽  
Convergence Criteria ◽  
The North ◽  
Single European Act ◽  
Effective Role ◽  
Set Up ◽  
New Institutions

THE NEW REGIONALISM, MANIFESTED IN EUROPE BY THE SINGLE European Act and the Maastricht Treaty (1992) and in North America by the signature of the North-American Free Trade Agreement (NAFTA 1993), is centred on strategic policies and new institutions, the aims of which are to achieve a more effective role in global competition. In Europe, the shift is marked by the impending process of monetary union and the creation of its related institutions. The new approach agreed in the Maastricht Treaty sets out four requirements for eligibility to membership of monetary union. Convergence criteria embodying the judgment of financial markets about future inflation, exchange rate and fiscal policy appeared to be the second best choice for governments seeking to institutionalize their commitment to inflation-avoiding policies. The whole mechanism is meant first to provide the region with a credible monetary institution able to win over the financial markets and secondly to set up bulwarks to the inflation-prone pressures of domestic sheltered interests. Thirdly, the aim is to commit member countries, through a so-called targeting exercise (in Keohane's words) to accomplishing the agreed objectives with monetary discipline and macroeconomic adjustment.

Large-scale EMU: the May Council decisions and implications for monetary policy

1998 ◽  
Vol 165 ◽  
pp. 109-114
Author(s):  
John Arrowsmith
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Monetary Union ◽  
Large Scale ◽  
Economic And Monetary Union ◽  
European Central ◽  
Political Independence ◽  
Future Viability ◽  
Heads Of State ◽  
The Eu

The decision by the EU Council of Heads of State or of Government at the beginning of May, that eleven Member States would form an Economic and Monetary Union on 1 January 1999, occasioned little surprise: financial markets and economic commentators had become increasingly convinced over the preceding months that EMU would start on time with a membership extending beyond the six ‘core’ countries—France, Germany, the Benelux countries and Austria—to include also Finland, Ireland, Italy, Portugal and Spain. What was not widely expected was that the ECOFIN and HoSoG Councils on 1–2 May appear to have spent little time debating the economic case for including each of the eleven countries but to have been preoccupied instead with a heated political row about who should be appointed President of the European Central Bank.This note assesses the possible consequences that this cavalier approach to the vital question of membership of monetary union might have for the conduct of policy in Stage 3 and the future viability of EMU. It examines the economic evidence that had been presented to the Councils to see whether their judgement that the economies of all eleven countries are sufficiently convergent is warranted. It also considers whether the unseemly compromise through which the dispute about the ECB Presidency was resolved will prejudice the political independence of the ECB in its conduct of monetary policy.

scholarly journals The Home Bias in the Process of European Integration

Equilibrium ◽  
2010 ◽  
Vol 4 (1) ◽  
pp. 143-152
Author(s):  
Anna Kozłowska
Keyword(s):  
European Integration ◽  
Monetary Union ◽  
Home Bias ◽  
Internal Market ◽  
Common Market ◽  
Economic And Monetary Union ◽  
Customs Union ◽  
The Past ◽  
The Relationship ◽  
European Markets

This article aims to identify the relationship between the phenomenon of home bias and the process of European integration. During the past decades, European integration has evolved from a Common Market and the Customs Union, the Internal Market and Economic, and Monetary Union. Despite the improvements in integration of European markets, their potential is not fully exploited. Countries consumption baskets and inwestment portfolios still contain a predominant share of domestically produced products and domestic assets and national-born workers working in national labour markets. This is commonly known as the phenomenon of home bias.

scholarly journals Home Bias in Open Economy Financial Macroeconomics

2013 ◽  
Vol 51 (1) ◽  
pp. 63-115 ◽  
Author(s):  
Nicolas Coeurdacier ◽  
Hélène Rey
Keyword(s):  
Financial Markets ◽  
Open Economy ◽  
Home Bias ◽  
Bank Lending ◽  
Income Risk ◽  
Informational Frictions ◽  
Equity Home Bias ◽  
Institutional Holdings ◽  
Macroeconomic Modeling ◽  
Recent Developments

Home bias is a perennial feature of international capital markets. We review various explanations of this puzzling phenomenon highlighting recent developments in macroeconomic modeling that incorporate international portfolio choices in standard two-country general equilibrium models. We refer to this new literature as Open Economy Financial Macroeconomics. We focus on three broad classes of explanations: (i) hedging motives in frictionless financial markets (real exchange rate and nontradable income risk), (ii) asset trade costs in international financial markets (such as transaction costs or differences in tax treatments between national and foreign assets), and (iii) informational frictions and behavioral biases. Recent theories call for new portfolio facts beyond equity home bias. We present new evidence on cross-border asset holdings across different types of assets: equities, bonds and bank lending and new micro data on institutional holdings of equity at the fund level. These data should inform macroeconomic modeling of the open economy and a growing literature of models of delegated investment. (JEL E13, F41, G11, G12, G15)

scholarly journals Private Information, Human Capital, and Optimal “Home Bias” in Financial Markets

2011 ◽  
Vol 5 (3) ◽  
pp. 255-301 ◽  
Author(s):  
Isaac Ehrlich ◽  
Jong Kook Shin ◽  
Yong Yin
Keyword(s):  
Human Capital ◽  
Financial Markets ◽  
Private Information ◽  
Home Bias

scholarly journals The European Central Bank, the Euro, and Global Financial Markets

2006 ◽  
Vol 20 (4) ◽  
pp. 67-88 ◽  
Author(s):  
Kathryn M. E Dominguez
Keyword(s):  
Central Bank ◽  
Financial Markets ◽  
Monetary Union ◽  
European Monetary Union ◽  
European Central Bank ◽  
Maastricht Treaty ◽  
European Monetary ◽  
Wide Margin ◽  
European Constitution ◽  
European Central

The economic case for European monetary union was shaky at best when it was first discussed 35 years ago. Europe's leaders felt that monetary union was the capstone to their efforts to create an integrated Europe, and much to the rest of the world's surprise, they succeeded. The introduction of the euro and the establishment of the European Central Bank (ECB) as the monetary authority of Europe went much more smoothly than many predicted. But nagging doubts about the wisdom of integration persist. The slim margins by which the Maastricht Treaty passed and the wide margin on which the European Constitution failed are reminders that Europeans are still wary of giving up their national sovereignty. This wariness also influences the ability of the ECB to efficiently take over monetary policy and limits the ability of the euro to become a true rival of the dollar in global financial markets.

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