Economic Integration and Financial Stability: A European Perspective, Issues 2006-2296
International Monetary Fund, 2006 - Electronic books - 28 pages
This paper assesses changes in synchronization of real activity and financial market integration in Western Europe and evaluates their implications for financial stability. We find increased synchronization of real activity since the early 1980s and increased equity markets integration since the early 1990s. We also find that measures of systemic risk at large European financial institutions have not declined during the period 1990-2004 and that bank systemic risk profiles have converged. At the same time, the sensitivity of bank and insurance systemic risk measures to common real and financial shocks has increased in most countries. Overall, these results suggest that the integration process does not necessarily entail an unambiguously positive effect on financial stability.
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Systemic Risk and Integration
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Adjaoute advances in financial assessing asset return Austria bank systemic risk banks and insurance Belgium BSM model business cycle changes in real common component common real shocks common shocks country-specific Credit Risk cross-country variance cross-sectional variance Datastream DD measures denote discount factor EGARCH Estimates equity market integration European banks European Central Bank European Commission evolution financial integration financial markets firms gauge Gianni Greece increased correlation increased real synchronization increased synchronization insurance companies insurance risk profiles intermediaries International Monetary Fund IPG Mean Equation IPG rates Italy log H magnitude of common Maximum Likelihood mean and variance Mean Equati.n measures of systemic Netherlands Nicolo occurred portfolio profiles to common real and financial sectors sensitivity of bank shocks has increased shocks has significantly Stiroh strike price synchronization and advances synchronization in real systemic risk measures systemic risk profiles T-Stat Signif trend coefficients United Kingdom Variance Equation variance of IPG