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International Bond Markets and the Intro of the Euro (ICPSR 1228)

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Summary:

In this article, the author analyzes the future prospects of the euro as an international currency from a portfolio perspective. Using daily bond and exchange-rate data during the period 1996-1998, the author constructs an optimal benchmark portfolio for representative investors from the United States, Japan, the United Kingdom, and the three major European countries participating in the euro: France, Germany, and Italy. Subsequently, the author distinguishes three plausible (euro) exchange-rate scenarios and three plausible (European) bond market scenarios as a result of the introduction of the euro. Then, the portfolio optimization is implemented again under the nine scenarios. Generally, the outcomes suggest that an increase in net demand for euro assets is unlikely, due to the inherent reduction of attractive diversification possibilities. For a given eurobond supply, this in turn implies a depreciation of the euro. Potential entry of the United Kingdom into the euro area is not seen to change the results. However, increasing depth and liquidity of European bond markets, together with lower transaction costs, may reverse the conclusions. Finally, the author shows that both actual supply and demand developments in international bond markets in 1999 are consistent with the observed depreciation of the euro relative to the United States dollar.

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  • These data are flagged as replication datasets and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.

  • These data are freely available.

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Study Description

Citation

Kool, Clemens J.M. International Bond Markets and the Intro of the Euro. ICPSR01228-v1. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2001-04-02. http://doi.org/10.3886/ICPSR01228.v1

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Scope of Study

Subject Terms:   currencies, euro, exchange rates, international monetary system

Geographic Coverage:   France, Germany, Italy, Japan, United Kingdom, United States, Global

Data Collection Notes:

(1) Two files were submitted: 0009ck.xls, a data file, and 0009ckp.zip, which contains program files and a description file, 0009ckp.doc. (2) These data are part of ICPSR's Publication-Related Archive and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator if further information is desired.

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