The network covers three broad research areas:
- European financial integration - This area deals with cross-country and cross-regional linkages within the euro area/EU. Financial linkages are defined by relationships between prices and by relationships between quantities across the relevant geographical entities. In a fully integrated market the same asset traded in different locations should have the same price everywhere ("law of one price"). Also, integrated markets tend to be characterised by high cross-regional or cross-country turnover. Work under the network should assess both the degree of integration in the main European financial markets (money, bond, equity, credit and derivative markets) and its implication for efficiency, welfare and growth. It should also evaluate the role of the euro as a catalyst for financial integration. Finally, such research should identify obstacles to further integration and allow for the derivation of policy recommendations.
- Financial system structures in Europe - The structure of a financial system is defined by the relative importance of different financial markets and different types of financial intermediaries in channelling funds from saving into investment. Significant differences in structure allow the distinction between different types of financial systems. Work under the network aims at identifying financial structures in the euro area/EU, their determinants and evolution over time. Of particular importance is how financial system structure relates to performance, namely the efficiency (how are transaction costs, information asymmetries and incentive problems overcome?) and the stability of the financial system, and to economic growth. Given that the financial systems in different euro area/EU countries are not fully homogeneous, this broad area also includes comparative work on the structure of financial systems in various countries.
- Financial linkages between the euro area/EU, the United States and Japan - This area covers linkages in asset prices and quantities between the three major currency blocks. Do the way in which asset price movements in one block influence the movements in the other block change over time and why? What are the microeconomic and macroeconomic determinants of international portfolio investments? Is international financial integration progressing with the same strength and speed as in the euro area or has the introduction of the euro made a difference? Of interest are also the implications of advancing integration for the international synchronisation of business cycles and the likelihood and strength of crisis spillovers.
