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Government Bond Market Integration within European Union

This paper examines the extent of linkages among Euro and non-Euro government bond markets in the pre- and post-Euro introduction period. Multivariate cointegration analyses indicate absence of cointegration among the Euro bond markets in the pre-Euro period but a weak one in the post-Euro period. By contrast, there is evidence of strong cointegration in the post-Euro period among the non-Euro bond markets. Further, in the post-Euro period several bivariate linkages among the Euro bond markets exist. Finally, the US bond market appears to uni-directionally Granger-cause all Euro bond markets in both subperiods. The findings have important implications for investors, in terms of diversification benefits, and for policymakers, in terms of the proper conduct of the common monetary policy.