The Impact of the Euro on Equity and Government Bond Markets

This paper assesses whether the euro had an impact on the degree of integration of European financial markets. We propose two methodologies to measure integration: one relies on time-varying GARCH correlations, and the other one on a regression quantile-based co-dependence measure. We document an overall increase in co-movements in both equity and bond euro area markets, suggesting that integration has progressed since the introduction of the euro. However, while the correlations in bond markets reaches almost one for all euro area countries, co-movements in equity markets are much lower and the increase is limited to large euro area economies only.