Friday, 26 March 2010: 17:05
We use the panel convergence methodology proposed by Phillips and Sul (Econometrica 2007) to test for integration in the European banking sector. To overcome the difficulties associated with the ‘law of one price’, we use the banking integration metric proposed by Gropp and Kashyap (NBER 2009), that is, equality in the return of assets of individual banks. Additionally, we extend the Phillips and Sul technique in order to identify the factors driving integration. Our preliminary results indicate stronger than commonly thought banking integration in the EMU.