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The euro and the geography of international debt flows

  • Hale, Galina

    ()

    (Federal Reserve Bank of San Francisco)

  • Obstfeld, Maurice

    (University of California Berkeley,)

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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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2014-10.

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Length: 39 pages
Date of creation: 14 Apr 2014
Date of revision:
Handle: RePEc:fip:fedfwp:2014-10
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  1. Coeurdacier, Nicolas & Martin, Philippe, 2006. "The Geography of Asset Trade and the Euro: Insiders and Outsiders," ESSEC Working Papers DR 06020, ESSEC Research Center, ESSEC Business School.
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  12. De Grauwe, Paul, 2012. "The Governance of a Fragile Eurozone," Walter Adolf Jöhr Lecture 2012, University of St. Gallen, School of Economics and Political Science, Institute of Economics (FGN-HSG).
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  14. Obstfeld, Maurice, 2013. "Finance at Center Stage: Some Lessons of the Euro Crisis," CEPR Discussion Papers 9415, C.E.P.R. Discussion Papers.
  15. Portes, Richard & Rey, Hélène, 1999. "The Determinants of Cross-Border Equity Flows," CEPR Discussion Papers 2225, C.E.P.R. Discussion Papers.
  16. Broner, Fernando A & Erce, Aitor & Martin, Alberto & Ventura, Jaume, 2013. "Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out Effects," CEPR Discussion Papers 9761, C.E.P.R. Discussion Papers.
  17. Michael Ehrmann & Marcel Fratzscher & Refet S Güürkaynak & Eric T Swanson, 2011. "Convergence and Anchoring of Yield Curves in the Euro Area," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 350-364, February.
  18. Paul De Grauwe, 2012. "The Governance of a Fragile Eurozone," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 45(3), pages 255-268, 09.
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  23. repec:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g7287gghh is not listed on IDEAS
  24. Viral Acharya & Itamar Drechsler & Philipp Schnabl, 2011. "A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk," Working Papers 2012-004, Becker Friedman Institute for Research In Economics.
  25. Eugenio Cerutti, 2013. "Banks’ Foreign Credit Exposures and Borrowers’ Rollover Risks Measurement, Evolution and Determinants," IMF Working Papers 13/9, International Monetary Fund.
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