The EMU and German Cross Border Portfolio Flows

Berkel, Barbara

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URL:	https://ub-madoc.bib.uni-mannheim.de/1576
URN:	urn:nbn:de:bsz:180-madoc-15763
Document Type:	Working paper
Year of publication:	2006
The title of a journal, publication series:	MEA Discussion Papers
Volume:	110
Place of publication:	Mannheim
Publication language:	English
Institution:	School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series:	Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject:	300 Social sciences, sociology, anthropology
Classification:	JEL: G15 F36 F21 ,
Subject headings (SWD):	Portfolio-Investition , Internationale Kapitalbewegung , Europäische Union , Internationaler Kreditmarkt
Keywords (English):	European financial market integration , EMU , gravity model of bilateral asset trade , gross portfolio flows
Abstract:	The paper analyzes the effect of European financial integration, especially of the EMU, on gross portfolio flows between Germany and 47 countries from 1987 to 2002. A gravity model of bilateral asset trade is estimated. The results reveal that there is substantially more portfolio trade between Germany and countries also participating in the EMU. This effect evolves smoothly over time. In particular in 2002, cross-border portfolio flows between Germany and EMU countries are significantly larger compared to flows between Germany and Denmark, the UK, and Sweden which are part of the EU-15 but not of the Euro area. Moreover, changes in exchange rate volatility, financial market development and increased real economic integration among EMU countries have significant effects on German gross portfolio flows, but they can not account for the positive effect on German gross portfolio flows due to the formation of the EMU. Finally, the EMU effect on gross portfolio flows is revealed to be larger for countries with more developed banking and equity markets and for country pairs with more correlated business cycles.
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