Working Paper: CEPR ID: DP7776
Authors: Atanas Christev; Jacques Melitz
Abstract: This empirical study of the impact of EMU on capital market integration and consumption smoothing comes to three conclusions: first, EMU promotes members? holdings of foreign assets and foreign liabilities; second, no benefits of consumption smoothing result; third, EU membership, not a single money, nevertheless increases consumption smoothing. The source of this last influence on consumption smoothing is an important issue. Theoretically it could come from more tradable capital through greater price competition, more contestable home markets and the greater harmonization of regulations. There is also a seeming conflict between our results and those of one strand of the literature. However, the relevant writings concentrate on the effects of asymmetric output shocks while we study the unconditional impact of international portfolio di-versification in the presence of all shocks. This can explain the difference.
Keywords: capital market integration; consumption smoothing; currency union; European monetary union; European Union
JEL Codes: E00; F36; F41; G10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| EMU (F36) | cross-country holdings of assets and liabilities (F65) |
| cross-country holdings of assets and liabilities (F65) | consumption smoothing (D15) |
| EU membership (F36) | consumption smoothing (D15) |