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The Euro and The Geography of International Debt Flows

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  • Galina Hale
  • Maurice Obstfeld

Abstract

Greater financial integration between core and peripheral EMU members had an effect on both sets of countries. Lower interest rates allowed peripheral countries to run bigger deficits, which inflated their economies by allowing credit booms. Core EMU countries took on extra foreign leverage to expose themselves to the peripherals. The result has been asset-price bubbles and collapses in some of the peripheral countries, area-wide banking crisis, and sovereign debt problems. We analyze the geography of international debt flows using multiple data sources and provide evidence that after the euro’s introduction, Core EMU countries increased their borrowing from outside of EMU and their lending to the EMU periphery.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20033.

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Date of creation: Apr 2014
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Publication status: Forthcoming: The Euro and the Geography of International Debt Flows , Galina Hale, Maurice Obstfeld. in Sovereign Debt and Financial Crisis , Kalemli-Ozcan, Reinhart, and Rogoff. 2014
Handle: RePEc:nbr:nberwo:20033

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  1. Nuno Cassola & Ali Hortacsu & Jakub Kastl, 2009. "The 2007 Subprime Market Crisis Through the Lens of European Central Bank Auctions for Short-Term Funds," Discussion Papers, Stanford Institute for Economic Policy Research 08-039, Stanford Institute for Economic Policy Research.
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Cited by:
  1. Beatrice Pataracchia & Robert Kollmann & Marco Ratto & Werner Roeger & Jan in’t Veld, 2014. "International Capital Flows and the Boom-Bust Cycle in Spain," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 519, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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