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Cross-border banking flows spillovers in the Eurozone: Evidence from an estimated DSGE model

Author

Listed:
  • Jean-Christophe Poutineau

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Gauthier Vermandel

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper seeks to evaluate quantitatively how interbank and corporate cross-border flows shape business cycles in a monetary union. Using Bayesian techniques, we estimate a two-country DSGE model that distinguishes between Eurozone core and peripheral countries and accounts for national heterogeneities and a set of real, nominal and financial frictions. We find evidence of the key role of this cross-border channel as an amplifying mechanism in the diffusion of asymmetric shocks. Our model also reveals that under banking globalization, most national variables and the central bank interest rate are less sensitive to financial shocks while investment and current account imbalances are more sensitive to financial shocks.Finally, a counterfactual analysis shows that cross-border lending has affected the transmission of the recentfinancial crisis between the two groups of countries.

Suggested Citation

  • Jean-Christophe Poutineau & Gauthier Vermandel, 2015. "Cross-border banking flows spillovers in the Eurozone: Evidence from an estimated DSGE model," Post-Print halshs-01082798, HAL.
    • Handle: RePEc:hal:journl:halshs-01082798
    DOI: 10.1016/j.jedc.2014.11.006
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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