Impact of Inflation on Financial Integration in the Euro Area

This paper examines the impact of inflation on financial integration (FI) in the euro area using wavelet coherence analysis. We measure FI using the ECB’s integration indicators. Our results demonstrate that the relationship between inflation and FI varies over time, highlighting its dynamic nature. Particularly during crises, the negative spillover from inflation intensifies. We find limited impact of inflation on money market integration, while documenting a significant negative effect on bond and equity market integration