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The macroeconomic effects of the sovereign debt crisis in the euro area

Author

Listed:
  • Stefano Neri

    () (Bank of Italy)

  • Tiziano Ropele

    () (Bank of Italy)

Abstract

This paper uses a Factor Augmented Vector Autoregressive model to assess the macroeconomic impact of the euro-area sovereign debt crisis and the effectiveness of the European Central Bank's conventional monetary policy. First, our results show that in the countries most affected by the crisis, the tensions in sovereign debt markets made credit conditions significantly worse and weighed on economic activity and unemployment. The disruptive effects of the sovereign tensions propagated to the core economies of the euro area through the trade and confidence channels. Second, "modest" (in the sense of Leeper and Zha, 2003) counterfactual simulations suggest that the accommodative monetary policy stance of the ECB helped to moderate the negative effects of the sovereign debt tensions.

Suggested Citation

  • Stefano Neri & Tiziano Ropele, 2015. "The macroeconomic effects of the sovereign debt crisis in the euro area," Temi di discussione (Economic working papers) 1007, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_1007_15
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Silvana Bartoletto & Bruno Chiarini & Elisabetta Marzano & Paolo Piselli, 2018. "Banking Crises and Boom-Bust Dynamics: Evidence for Italy (1861-2016)," CESifo Working Paper Series 6972, CESifo.
    2. Stefano Neri & Stefano Siviero, 2018. "The Non-Standard Monetary Policy Measures of the ECB: Motivations, Effectiveness and Risks," Credit and Capital Markets, Credit and Capital Markets, vol. 51(4), pages 513-560.
    3. Debarsy, Nicolas & Dossougoin, Cyrille & Ertur, Cem & Gnabo, Jean-Yves, 2018. "Measuring sovereign risk spillovers and assessing the role of transmission channels: A spatial econometrics approach," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 21-45.
    4. Markus Eller & Thomas Reininger, 2016. "The influence of sovereign bond yields on bank lending rates: the pass-through in Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 54-78.
    5. İsmail ÇEVİŞ & Reşat CEYLAN & Nihal YAYLA, 2018. "The Comparative Advantage of Contagion Channels of EU Debt Crisis to Turkish Economy," Sosyoekonomi Journal, Sosyoekonomi Society, issue 26(36).

    More about this item

    Keywords

    sovereign debt crisis; FAVAR models; Bayesian methods; monetary policy;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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