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

Suggested Citation

  • Luca Guerrieri & Matteo Iacoviello & Raoul Minetti, 2013. "Banks, Sovereign Debt, and the International Transmission of Business Cycles," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 181-213.
  • Handle: RePEc:ucp:intsma:doi:10.1086/669586
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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 16:10:31

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    Cited by:

    1. Adler, Gustavo & Lizarazo, Sandra, 2015. "Intertwined sovereign and bank solvencies in a simple model of self-fulfilling crisis," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 428-448.
    2. Bokan, N. & Gerali, A. & Gomes, S. & Jacquinot, P. & Pisani, M., 2018. "EAGLE-FLI: A macroeconomic model of banking and financial interdependence in the euro area," Economic Modelling, Elsevier, vol. 69(C), pages 249-280.
    3. Brutti, Filippo & Sauré, Philip, 2015. "Transmission of sovereign risk in the Euro crisis," Journal of International Economics, Elsevier, vol. 97(2), pages 231-248.
    4. Poutineau, Jean-Christophe & Vermandel, Gauthier, 2015. "Cross-border banking flows spillovers in the Eurozone: Evidence from an estimated DSGE model," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 378-403.
    5. Lakdawala, Aeimit & Minetti, Raoul & Olivero, María Pía, 2017. "Interbank Markets and Credit Policies amid a Sovereign Debt Crisis," School of Economics Working Paper Series 2017-1, LeBow College of Business, Drexel University.
    6. Aliaga-Díaz, Roger & Olivero , María Pía & Powell, Andrew, 2016. "Anti-Cyclical Bank Capital Regulation and Monetary Policy," School of Economics Working Paper Series 2016-16, LeBow College of Business, Drexel University.
    7. Christopher M. Gunn & Alok Johri, 2013. "Fear of Sovereign Default, Banks, and Expectations-driven Business Cycles," Department of Economics Working Papers 2013-08, McMaster University.
    8. Alessandro Giovannini & Maurizio Iacopetta & Raoul Minetti, 2013. "Financial Markets, Banks, and Growth : Disentangling the links," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 105-147.
    9. Everett Grant, 2016. "Exposure to international crises: trade vs. financial contagion," ESRB Working Paper Series 30, European Systemic Risk Board.
    10. repec:cup:macdyn:v:22:y:2018:i:02:p:470-500_00 is not listed on IDEAS
    11. filippo gori, 2012. "The risk of self-protection: the role of bank bailout guarantees in channelling sovereign credit risk internationally," IHEID Working Papers 12-2014, Economics Section, The Graduate Institute of International Studies, revised 30 Nov 2014.
    12. Uluc Aysun, 2015. "The effects of global bank competition and presence on local business cycles: The Goldilocks principle does not apply to global banking," Working Papers 2015-02, University of Central Florida, Department of Economics, revised Oct 2015.
    13. Sergio de Ferra, 2017. "External Imbalances, Gross Capital Flows and Sovereign Debt Crises," 2017 Meeting Papers 726, Society for Economic Dynamics.
    14. Andre Diniz & Bernardo Guimaraes, 2014. "Financial disruption as a cost of soverign default: a quantative assessment," Discussion Papers 1427, Centre for Macroeconomics (CFM).
    15. Diniz, Andre & Guimaraes, Bernardo, 2014. "Financial disruption as a cost of sovereign default: a quantitative assessment," LSE Research Online Documents on Economics 86329, London School of Economics and Political Science, LSE Library.
    16. Elton Beqiraj & Massimiliano Tancioni, 2014. "Fiscal Consolidation and Sovereign Risk in the Euro-zone Periphery," Working Papers 167, University of Rome La Sapienza, Department of Public Economics.

    More about this item

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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