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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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Suggested Citation

  • Galina Hale & Maurice Obstfeld, 2016. "The Euro And The Geography Of International Debt Flows," Journal of the European Economic Association, European Economic Association, vol. 14(1), pages 115-144, February.
    • Handle: RePEc:bla:jeurec:v:14:y:2016:i:1:p:115-144
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    File URL: http://hdl.handle.net/10.1111/jeea.2016.14.issue-1
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    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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