The Euro-Mediterranean Partnership and Financial Integration: a first assessment for selected countries

Abstract

In this paper, we try to provide a first assessment on the extent of financial integration and convergence between selected European and Southern Mediterranean countries involved in the Barcelona process. In particular, we implement a simple test of capital mobility based on the verification of the international real interest parity hypothesis between domestic rates against the real rate of Germany, used as the European reference country, and against the real rate of the US. We repeat the test before and after the introduction of the Euro, and then measure the speed of real interest rate convergence.