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

Listed author(s):
  • Jean-Christophe Poutineau

    (CREM - Centre de Recherche en Economie et Management - UR1 - Université de Rennes 1 - Université de Caen Basse-Normandie - CNRS - Centre National de la Recherche Scientifique)

  • Gauthier Vermandel

    (CREM - Centre de Recherche en Economie et Management - UR1 - Université de Rennes 1 - Université de Caen Basse-Normandie - CNRS - Centre National de la Recherche Scientifique)

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.

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Paper provided by HAL in its series Post-Print with number halshs-01082798.

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Date of creation: Feb 2015
Publication status: Published in Journal of Economic Dynamics and Control, 2015, 51, pp.378-403. <10.1016/j.jedc.2014.11.006>
Handle: RePEc:hal:journl:halshs-01082798
DOI: 10.1016/j.jedc.2014.11.006
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01082798
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