Regional Versus Global Integration of Eurozone Retail Banking Markets: Understanding the Recent Evidence from Price-Based Integration Measures

62 Pages Posted: 1 Feb 2005

See all articles by Stefanie Kleimeier

Stefanie Kleimeier

Maastricht University - Department of Finance; Open Universiteit; Univ. of Stellenbosch Business School

Harald Sander

University of Applied Sciences Cologne

Date Written: September 2004

Abstract

This study investigates the current state of eurozone banking market integration by applying price convergence and cointegration measures to mortgage and short-term corporate loan rates. These two measures of integration often lead to contradicting conclusions and are therefore comparatively analyzed. As an innovation to the literature, price convergence measures are exposed to a difference-in-differences methodology which allows separating eurozone-specific from global integration effects. Our results show that eurozone-specific convergence exists mainly in the pre-EMU period. Rolling cointegration analyses, on the other hand, reveal that cointegration is especially prominent before 1993 and after January 1999 but hardly present in between. Overall, we conclude that (1) convergence of retail banking interest rates is largely a result of integrating money and bonds markets in anticipation of the single currency and (2) a monetary union can produce (co)integration when retail rates react similarly to a single monetary policy rate. Thus, for the eurozone it appears that convergence measures provide the most information for the period leading up to the EMU whereas cointegration is more useful during the EMU period as well as prior to the ERM crisis in 1992.

Keywords: European financial integration, global financial integration, retail banking, convergence, cointegration, difference-in-differences analysis

JEL Classification: E42, E43, E52, E58, F15, F36

Suggested Citation

Kleimeier, Stefanie and Sander, Harald, Regional Versus Global Integration of Eurozone Retail Banking Markets: Understanding the Recent Evidence from Price-Based Integration Measures (September 2004). Available at SSRN: https://ssrn.com/abstract=657902 or http://dx.doi.org/10.2139/ssrn.657902

Stefanie Kleimeier (Contact Author)

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Open Universiteit

Valkenburgerweg 177
Heerlen, 6419 AT
Netherlands

Univ. of Stellenbosch Business School

Carl Cronjé Drive
CAPE TOWN, Cape Town 7535
South Africa

Harald Sander

University of Applied Sciences Cologne ( email )

Claudiusstrrasse 1
50678 Cologne
Germany
+49 221 82753419 (Phone)
+49 221 82753131 (Fax)

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

Paper statistics

Downloads
118
Abstract Views
971
Rank
425,167
PlumX Metrics