The Euro and International Capital Markets

Posted: 15 Jul 2003

See all articles by Carsten Detken

Carsten Detken

European Central Bank (ECB)

Philipp Hartmann

European Central Bank (ECB); Centre for Economic Policy Research (CEPR) - International Macroeconomics

Multiple version iconThere are 3 versions of this paper

Abstract

Long before the introduction of the euro there was an active debate among researchers, policy-makers and financial market participants over how the new European money would change the relative roles of currencies in the international monetary and financial system. A widely held view was that the european's use in international capital markets would be the key element. Therefore, this paper provides a broad empirical examination of the major currencies' roles in international capital markets, with a special emphasis on the first year of the euro. A contribution is made as to how to measure these roles, both from the viewpoint of international financing and from that of international investment activities. Time series of these new measures are presented, including euro aggregates calculated up to six years back in time. The data allow for the identification of changes in the role of the euro during 1999 compared to the aggregate of euro predecessor currencies, net of intra-euro area assets/liabilities, since the start of stage 2 of EMU in 1994. A number of key factors determining the currency distribution of international portfolio investments, such as relative market liquidity and relative risk characteristics of assets, are also examined empirically. It turns out that for almost all important market segments for which data are available, the euro immediately became the second most widely used currency for international financing and investment. For the flow of international bond and note issuance it even slightly overtook the US dollar in the second half of 1999. The data also suggest that most of this early supply of euro bonds by non-euro area residents, clearly exceeding the euro-predecessor currency aggregate, is actually absorbed by euro area residents and not by outside investors so far.

Keywords: international capital markets, international currencies, euro, dollar, yen, EMU, capital flows, international monetary system, portfolio selection, bond markets, equity markets, bank lending

JEL Classification: G15, F32, G11, F21

Suggested Citation

Detken, Carsten and Hartmann, Philipp, The Euro and International Capital Markets. Available at SSRN: https://ssrn.com/abstract=313360

Carsten Detken (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0049 69 1344 6000 (Fax)

Philipp Hartmann

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
(49 69) 1344 7356 (Phone)
(49 69) 1344 8553 (Fax)

Centre for Economic Policy Research (CEPR) - International Macroeconomics

London
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,572
PlumX Metrics