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Banks, Sovereign Debt, and the International Transmission of Business Cycles

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  • Luca Guerrieri
  • Matteo Iacoviello
  • Raoul Minetti

Abstract

This paper studies the international propagation of sovereign debt default. We posit a two-country economy where capital constrained banks grant loans to firms and invest in bonds issued by the domestic and the foreign government. The model economy is calibrated to data from Europe, with the two countries representing the Periphery (Greece, Italy, Portugal and Spain) and the Core, respectively. Large contractionary shocks in the Periphery trigger sovereign default. We find sizable spillover effects of default from Periphery to the Core through a drop in the volume of credit extended by the banking sector.

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File URL: http://www.jstor.org/stable/full/10.1086/669586
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Bibliographic Info

Article provided by University of Chicago Press in its journal NBER International Seminar on Macroeconomics.

Volume (Year): 9 (2013)
Issue (Month): 1 ()
Pages: 181 - 213

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Handle: RePEc:ucp:intsma:doi:10.1086/669586

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. L’Unione bancaria europea, strumento di stabilita’ e di crescita
    by Raoul Minetti in iMille on 2014-02-25 10:10:31
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Cited by:
  1. Christopher M. Gunn & Alok Johri, 2013. "Fear of Sovereign Default, Banks, and Expectations-Driven Business Cycles," Carleton Economic Papers 13-03, Carleton University, Department of Economics.

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