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Parsing financial fragmentation in the euro area: a multi-country DSGE perspective

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  • Darracq Pariès, Matthieu
  • Jacquinot, Pascal
  • Papadopoulou, Niki

Abstract

The euro area experience during the financial crisis highlighted the importance of financial and sovereign risk factors in macroeconomic propagation, as well as the constraints that bank lending fragmentation would pose for monetary policy conduct in a currency union. We design a 6-region multi-country DSGE model which provides a structural interpretation of the salient features of these developments. The model spans the relevant "financial wedges" at play during the crisis, together with its cross-country heterogeneity within the euro area, focusing on Ger- many, France, Italy, Spain, and rest-of-euro area. We construct three stylised macro-financial scenarios as a synopsis of the euro area financial crisis and argue that the adverse interactions between sovereign, banking and corporate risk, can account to a large extent for the financial repression and poor economic performance observed in some parts of the euro area. JEL Classification: E4, E5, F4

Suggested Citation

  • Darracq Pariès, Matthieu & Jacquinot, Pascal & Papadopoulou, Niki, 2016. "Parsing financial fragmentation in the euro area: a multi-country DSGE perspective," Working Paper Series 1891, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20161891
    Note: 604093
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Matthieu Darracq Paries & Pascal Jacquinot & Niki Papadopoulou, 2016. "Synopsis of the Euro Area Financial Crisis," Working Papers 2016-8, Central Bank of Cyprus.
    2. Beyer, Andreas & Nicoletti, Giulio & Papadopoulou, Niki & Papsdorf, Patrick & Rünstler, Gerhard & Schwarz, Claudia & Sousa, João & Vergote, Olivier, 2017. "The transmission channels of monetary, macro- and microprudential policies and their interrelations," Occasional Paper Series 191, European Central Bank.
    3. Maria Manuel Campos & Cristina Checherita-Westphal & Pascal Jacquinot & Pablo Burriel & Francesco Caprioli, 2019. "Economic consequences of high public debt and challenges ahead for the euro area," Working Papers o201904, Banco de Portugal, Economics and Research Department.
    4. Darracq Pariès, Matthieu & Papadopoulou, Niki X., 2020. "On the credit and exchange rate channels of central bank asset purchases in a monetary union," Economic Modelling, Elsevier, vol. 91(C), pages 502-533.
    5. Matthieu Darracq Paries & Pascal Jacquinot & Niki Papadopoulou, 2016. "Parsing Financial Frictions Underlying Bank Lending Fragmentation during the Euro Area Crisis," Working Papers 2016-07, Central Bank of Cyprus.
    6. Darracq Pariès, Matthieu & Papadopoulou, Niki & Müller, Georg, 2020. "Fiscal multipliers with financial fragmentation risk and interactions with monetary policy," Working Paper Series 2418, European Central Bank.
    7. Matthieu Darracq Paries & Jenny Korner & Niki Papadopoulou, 2019. "Empowering Central Bank Asset Purchases: The Role of Financial Policies," Working Papers 2019-1, Central Bank of Cyprus.
    8. Financial Stability Committee, Task Force on cross-border Spillover Effects of macroprudential measures & Kok, Christoffer & Reinhardt, Dennis, 2020. "Cross-border spillover effects of macroprudential policies: a conceptual framework," Occasional Paper Series 242, European Central Bank.
    9. Burriel, Pablo & Checherita-Westphal, Cristina & Jacquinot, Pascal & Stähler, Nikolai & Schön, Matthias, 2020. "Economic consequences of high public debt: evidence from three large scale DSGE models," Working Paper Series 2450, European Central Bank.
    10. Matthieu Darracq Paries & Pascal Jacquinot & Niki Papadopoulou, 2016. "Synopsis of the Euro Area Financial Crisis," Working Papers 2016-08, Central Bank of Cyprus.
    11. Matthieu Darracq Paries & Pascal Jacquinot & Niki Papadopoulou, 2016. "Parsing Financial Frictions Underlying Bank Lending Fragmentation during the Euro Area Crisis," Working Papers 2016-7, Central Bank of Cyprus.
    12. Ortega, Eva & Osbat, Chiara, 2020. "Exchange rate pass-through in the euro area and EU countries," Occasional Paper Series 241, European Central Bank.

    More about this item

    Keywords

    banking; bank lending rates; cross-country spillovers; DSGE models; financial regulation;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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