We examine the relationship between real and financial integration. Real integration is measured by productivities of capital and labor from trade data for 1982 to 1997. Financial integration is measured by the black market exchange rate. We find more evidence of convergence to equality for...

Within the last decade sizeable capital inflows from mature economies were accompanied by rapid financial deepening in the Western Balkans, Turkey and the CIS. Notwithstanding their considerably different initial positions most countries sustained financial stability in the first period of the...

This paper provides an explanation for the observed decline of the exchange rate pass-through into import prices by modeling the effects of financial market integration on the optimal choice of the pricing currency in the context of rigid nominal goods prices. Contrary to previous literature, we...

This paper demonstrates that, after integration, equity portfolios of countries that joined the European Monetary Union have converged at faster rate than those of NON EMU countries. This outcome can be interpreted as a combination of the convergence of inflation rates and the convergence of...

We gauge the de-facto capital account openness of the Chinese and Indian economies by testing the law of one price on the basis of onshore and offshore price gaps for three key financial instruments. Generally, the three measures show both economies becoming more financially open over time. Over...

This paper yields a rationale for why subsidized public banks may be desirable from a regional perspective in a financially integrated economy. We present a model with credit rationing and heterogeneous regions in which public banks prevent a capital drain from poorer to richer regions by...

We set up a two-country, regional model of trade in financial services. Competitive firms in each country manufacture untraded consumer goods in an uncertain productive environment, borrowing funds from a bank in either the home or the foreign market. Duopolistic banks can choose their levels of...

While domestic interbank markets are often considered to work in an efficient way, cross-country bank lending appears to be subjected to market imperfections leading to persistent interest rate differentials. In a model where banks need to cope with liquidity shocks by borrowing or by...

Four years after the introduction of the euro, this paper provides an overview of the current structure and integration of the euro area financial systems and related policy initiatives. We first compare the euro area financial structure with that of the United States and Japan. Using new and...

We assess whether the euro had an impact first on the degree of integration of European financial markets, and, second, on the euro area term structure. We propose two methodologies to measure integration: one relies on time-varying GARCH correlations, and the other one on a regression...