  This paper examines the degree of integration at euro area financial markets.
To that end, we estimate overall and country-specific integration indices based
on a panel vector-autoregression with factor stochastic volatility. Our results
indicate a more heterogeneous bond market compared to the market for lending
rates. At both markets, the global financial crisis and the sovereign debt
crisis led to a severe decline in financial integration, which fully recovered
since then. We furthermore identify countries that deviate from their peers
either by responding differently to crisis events or by taking on different
roles in the spillover network. The latter analysis reveals two set of
countries, namely a main body of countries that receives and transmits
spillovers and a second, smaller group of spillover absorbing economies.
Finally, we demonstrate by estimating an augmented Taylor rule that euro area
short-term interest rates are positively linked to the level of integration on
the bond market.
