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Title:A factor analysis approach to measuring European loan and bond market integration PDF Logo
Authors:Wagenvoort, Rien
Ebner, André
Morgese Borys, Magdalena
Issue Date:2009
Series/Report no.:Economic and financial reports / European Investment Bank 2009/01
Abstract:By using an existing and a new convergence measure, this paper assesses whether bank loan and bond interest rates are converging for the non-financial corporate sector across the euro area. Whilst we find evidence for complete bond market integration, the market for bank loans remains segmented, albeit to various degrees depending on the type and size of the loan. Factor analysis reveals that rates on large loans and small loans with long rate fixation periods have weakly converged in the sense that, up to a fixed effect, their evolution is driven by common factors only. In contrast, the price evolution of small loans with short rate fixation periods is still affected by country-specific dynamic factors. There are few signs that bank loan rates are becoming more uniform with time.
Subjects:financial market integration
corporate loan
corporate bond
panel unit root test
factor analysis
JEL:C12
C23
G12
G21
Document Type:Working Paper
Appears in Collections:Economic and Financial Reports, European Investment Bank (EIB)

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