Who Drove the Boom in Euro-Denominated Bond Issues?

45 Pages Posted: 2 Apr 2009

See all articles by Galina Hale

Galina Hale

University of California, Santa Cruz

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department

Date Written: March 31, 2009

Abstract

We make use of micro-level data for over 45,000 private bond issues by over 5000 firms from 22 countries in 1990-2006 to analyze the impact that the launch of the EMU had on their currency denomination. The use of the micro data allows us to isolate the "euro effect" on new and seasoned bond issuers while conditioning on individual issue characteristics. To our knowledge, ours is the first systematic analysis of this topic at the micro level. We find that the impact on new issuers is larger than on seasoned issuers and that most of the increase in the euro-denominated bond issuance by seasoned borrowers was along the "extensive" margin, i.e. borrowers switching currency denomination of their issues. Insofar as new entrants to the bond market will define the overall currency composition in the long run, these results imply that aggregate studies might be underestimating the euro effect. We also find that to a large extent the increase in euro issuance was "at the expense" of U.S. dollar issuance, suggesting that euro competes with the U.S. dollar as a currency of choice for international - financial transactions.

Keywords: bond markets, monetary union, currency risk, original sin, liquidity

JEL Classification: F34, F36

Suggested Citation

Hale, Galina and Spiegel, Mark M., Who Drove the Boom in Euro-Denominated Bond Issues? (March 31, 2009). Available at SSRN: https://ssrn.com/abstract=1371720 or http://dx.doi.org/10.2139/ssrn.1371720

Galina Hale (Contact Author)

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3184 (Phone)
415-974-2168 (Fax)

HOME PAGE: http://www.frbsf.org/economics/economists/mspiegel.html

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