Estimating financial integration in Europe: How to separate structural trends from cyclical fluctuations

Arbeitspapier

We construct a new indicator of de facto financial integration in the EU. The resulting indicator is pro-cyclical as it evolves along the cyclical pattern of economic activity in the European Union. It is then appended to a set of relevant financial and macroeconomic variables, within a FAVAR framework, to allow us to separate the impact of cyclical boom-bust shocks from structural integration shocks. Increasing structural financial integration tends to improve risk absorption and reduce income disparities among European countries. However, our analysis suggests that most of the movements in the indicator reflect business cycle dynamics, not proper integration. Given the estimated beneficial effects of stronger structural financial integration, these results highlight the need to develop further policies to foster it in the EU.

Object Details

• ISBN: 978-92-861-5408-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: EIB Working Papers ; No. 2022/15

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Financial Aspects of Economic Integration ; International Business Cycles ; International Financial Markets
• Subject: Business Cycle ; FAVAR Models ; Financial Markets ; Macroeconomic Shocks

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lake, Alfred ; Maurin, Laurent ; Minnella, Enrico
• Event: Veröffentlichung
• (who): European Investment Bank (EIB)
• (where): Luxembourg
• (when): 2022

Further information

• DOI: doi:10.2867/255979
• Handle: http://hdl.handle.net/10419/266484
• Last update: 10.03.2025, 11:44 AM CET