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Banks, Sovereign Risk and Unconventional Monetary Policies

Author

Listed:
  • Stéphane Auray

    () (CREST-ENSAI)

  • Aurélien Eyquem

    (CREST-ENSAI)

  • Xiaofei Ma

    (CREST-ENSAI)

Abstract

We develop a two-country model with an explicitly microfounded interbank market and sovereign default risk. Calibrated to the Euro Area, the model performs satisfactorily in matching key business cycle facts on real, financial and fiscal time series. We then use the model to assess the effects of a large crisis and quantify the potential effects of alternative unconventional policies on the dynamics of GDP, sovereign default risk and public indebtedness. We show that quantitative monetary easing is more efficient in stimulating GDP, while qualitative monetary easing relieves financial tensions and sovereign risk more efficiently. In terms of welfare, in the short run, unconventional monetary policies bring sizable welfare gains for households, while the long term effects are much smaller

Suggested Citation

  • Stéphane Auray & Aurélien Eyquem & Xiaofei Ma, 2014. "Banks, Sovereign Risk and Unconventional Monetary Policies," Working Papers 2014-10, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2014-10
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    References listed on IDEAS

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    Cited by:

    1. Erica Perego, 2018. "Sovereign risk and asset market dynamics in the euro area," Documents de recherche 18-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.

    More about this item

    Keywords

    Recession; Interbank Market; Sovereign Default; Monetary Policy;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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