Advanced Search
MyIDEAS: Login to save this book chapter or follow this series

Banks, Sovereign Debt and the International Transmission of Business Cycles

In: NBER International Seminar on Macroeconomics 2012

Contents:

Author Info

  • 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.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/chapters/c12786.pdf
Download Restriction: no

Bibliographic Info

as in new window

This chapter was published in:

  • Francesco Giavazzi & Kenneth D. West, 2013. "NBER International Seminar on Macroeconomics 2012," NBER Books, National Bureau of Economic Research, Inc, number giav12-1.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12786.

    Handle: RePEc:nbr:nberch:12786

    Contact details of provider:
    Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Email:
    Web page: http://www.nber.org
    More information through EDIRC

    Related research

    Keywords:

    Other versions of this item:

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Marianne Baxter & Mario J. Crucini, 1994. "Business Cycles and the Asset Structure of Foreign Trade," NBER Working Papers 4975, National Bureau of Economic Research, Inc.
    2. Wouter den Haan & Garey Ramey & Joel Watson, 1999. "Liquidity Flows and Fragility of Business Enterprises," NBER Working Papers 7057, National Bureau of Economic Research, Inc.
    3. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers, Edinburgh School of Economics, University of Edinburgh 1995-5, Edinburgh School of Economics, University of Edinburgh.
    4. Michael B Devereux & James Yetman, 2009. "Leverage Constraints and the International Transmission of Shocks," RBA Research Discussion Papers, Reserve Bank of Australia rdp2009-08, Reserve Bank of Australia.
    5. Minetti, Raoul, 2007. "Bank capital, firm liquidity, and project quality," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(8), pages 2584-2594, November.
    6. Hartley, Peter R, 1998. "Inside Money as a Source of Investment Finance," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 30(2), pages 193-217, May.
    7. Ugo Panizza & Eduardo Levy Yeyati, 2006. "The Elusive Costs of Sovereign Defaults," IDB Publications 6713, Inter-American Development Bank.
    8. repec:acb:camaaa:2011-22 is not listed on IDEAS
    9. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers, Federal Reserve Bank of Minneapolis 426, Federal Reserve Bank of Minneapolis.
    10. Robert KOLLMANN, 2011. "Global Banking and International Business Cycles," 2011 Meeting Papers 20, Society for Economic Dynamics.
    11. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 42(s1), pages 107-141, 09.
    12. Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 1088-97, December.
    13. Gunes Kamber & Christoph Thoenissen, 2011. "Financial intermediation and the internationalbusiness cycle: The case of small countries with big banks," CAMA Working Papers 2011-22, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    14. Heathcote, Jonathan & Perri, Fabrizio, 1999. "Financial Autarky and International Business Cycles," Working Paper Series in Economics and Finance 320, Stockholm School of Economics, revised 30 Apr 2000.
    15. Perri, Fabrizio & Quadrini, Vincenzo, 2011. "International Recessions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8483, C.E.P.R. Discussion Papers.
    16. Rieth, Malte, 2014. "Myopic governments and welfare-enhancing debt limits," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 38(C), pages 250-265.
    17. Peter R. Hartley & Carl E. Walsh, 1986. "Inside money and monetary neutrality," Working Papers in Applied Economic Theory, Federal Reserve Bank of San Francisco 86-01, Federal Reserve Bank of San Francisco.
    18. Michael B. Devereux & Alan Sutherland, 2011. "Country Portfolios In Open Economy Macro‐Models," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 9(2), pages 337-369, 04.
    19. Enrique G. Mendoza & Vivian Z. Yue, 2011. "A General Equilibrium Model of Sovereign Default and Business Cycles," NBER Working Papers 17151, National Bureau of Economic Research, Inc.
    20. Ueda, Kozo, 2012. "Banking globalization and international business cycles: Cross-border chained credit contracts and financial accelerators," Journal of International Economics, Elsevier, Elsevier, vol. 86(1), pages 1-16.
    21. Vincenzo Quadrini & Enrique G. Mendoza, 2010. "Financial Globalization, Financial Crises and Contagion," 2010 Meeting Papers, Society for Economic Dynamics 841, Society for Economic Dynamics.
    22. Iacoviello, Matteo & Minetti, Raoul, 2006. "International business cycles with domestic and foreign lenders," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(8), pages 2267-2282, November.
    23. Kempf, Hubert & Gilchrist, Simon & Hairault, Jean-Olivier, 2002. "Monetary policy and the financial accelerator in a monetary union," Working Paper Series, European Central Bank 0175, European Central Bank.
    24. Patrick J. Kehoe & Fabrizio Perri, 2000. "International Business Cycles with Endogenous Incomplete Markets," NBER Working Papers 7870, National Bureau of Economic Research, Inc.
    25. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 48(2), pages 289-309, April.
    26. Luca Dedola & Giovanni Lombardo, 2012. "Financial frictions, financial integration and the international propagation of shocks," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 27(70), pages 319-359, 04.
    27. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 21(2-3), pages 195-232.
    28. Paasche, Bernhard, 2001. "Credit constraints and international financial crises," Journal of Monetary Economics, Elsevier, Elsevier, vol. 48(3), pages 623-650, December.
    29. Olivero, María Pía, 2010. "Market power in banking, countercyclical margins and the international transmission of business cycles," Journal of International Economics, Elsevier, Elsevier, vol. 80(2), pages 292-301, March.
    30. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 58(1), pages 17-34, January.
    31. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
    32. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, American Economic Association, vol. 78(3), pages 402-17, June.
    33. Martin Bodenstein & Luca Guerrieri & Christopher Gust, 2010. "Oil shocks and the zero bound on nominal interest rates," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1009, Board of Governors of the Federal Reserve System (U.S.).
    34. Robert Kollmann, 2010. "Banks and International Business Cycles," 2010 Meeting Papers, Society for Economic Dynamics 1058, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

    Citations

    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
    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    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.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:12786. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.