ABSTRACT
This paper employs wavelet coherence analysis to examine the co-movement of inflation and financial integration (FI) in the Euro area. We measure FI using the ECB’s integration indicators. Our results demonstrate that the relationship between inflation and FI varies over time, presenting a dynamic nature. The link between inflation and FI intensifies during crisis. We find a limited impact of inflation on money market integration while documenting a significant adverse effect on bond and equity market integration.
Acknowledgements
The authors wish to thank to participants of 27th International Conference on Macroeconomic Analysis and International Finance for their helpful comments and suggestions. The views expressed herein are our own and do not necessarily reflect those of any other institution.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Supplementary material
Supplemental data for this article can be accessed online at https://doi.org/10.1080/13504851.2024.2333457
Notes
1 See online appendix for a detailed discussion of the ECB indicators and summary statistics.
2 Partial wavelet coherence analysis offers an alternative to isolate factors impacting both inflation and FI, like economic growth or monetary policy. Although this approach provides valuable insights, practical challenges arise due to the low frequency of potential indicators, mainly available on a quarterly basis, and the specific time series properties, including seasonality and non-stationarity, which impede the integration of partial wavelet coherence into our empirical approach.