Working Paper

Gains from financial integration in the European union: evidence for new and old members

Abstract: We estimate potential welfare gains from financial integration and corresponding better insurance against country-specific shocks to output (risk sharing) for the twenty-five European Union countries. Using theoretical utility-based measures we express the gains from risk sharing as the utility equivalent of a permanent increase in consumption. We report positive potential welfare gains for all the EU countries if they move toward full risk sharing. Ten country-members who joined the Union in 2004 have more volatile or counter-cyclical consumption and output and would obtain much higher potential gains than the longer-standing fifteen members.

Keywords: International finance; European Union countries;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Supervisory Policy Analysis Working Papers

Publication Date: 2007

Number: 2007-01