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Consumption Smoothing and Financial Integration in the European Union
Author(s) -
Haliassos Michael,
Christou Costas
Publication year - 2000
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00223
Subject(s) - financial integration , consumption smoothing , consumption (sociology) , economics , convergence (economics) , smoothing , nonparametric statistics , point (geometry) , european union , estimation , control (management) , econometrics , macroeconomics , international economics , finance , financial market , computer science , business cycle , social science , geometry , mathematics , management , sociology , computer vision
In this paper we explore the likely implications of financial integration for intertemporal consumption smoothing in member countries. We uncover an intriguing pattern of excess sensitivity of consumption to current income in EU countries prior to integration using two procedures which handle most known time series estimation problems. We then relate this pattern to characteristics of banking sectors, using nonparametric tests which control for several such characteristics, and discuss likely implications of removing impediments to entry of foreign banks. Although conclusions about convergence following financial integration are less optimistic than previously thought, they also point to the need for broad financial integration.