European and global financial integration: some panel evidence of the convergence of interest rates

This paper seeks to contribute to the literature on financial integration using panel estimates to test beta- and sigma-convergence across the European Union countries’ interest rates and towards two specific benchmarks — the German and US rates — covering the time interval between 1999 and 2014 and taking into account the recent international financial crisis. The findings point to the existence of a process of convergence of interest rates and this process may be considered as part of the global process of integration. Furthermore, there is evidence of convergence to the chosen benchmarks, in particular of short-term real interest rates; the speed of this convergence towards the German rates clearly increased in the EU as a response to the financial crisis. Keywords: financial integration, banking market, European interest rates, beta-convergence, sigma-convergence, panel data estimates. JEL Classification: C2, E4, F3, G1, G